SDLT HMRC’s guidance on stamp duty land tax for partnerships does not address key areas. Kevin Ashman and Aaron Burchell consider the missing elements
Key points |
? HMRC’s SDLT manual fails to provide guidance on some of the most difficult issues concerning partnerships ? Guidance is needed on the anti-avoidance rules in Schedule 15 of the Finance Act 2003 ? Advice would be helpful on transfers of interest in property investment partnerhips |
Stamp duty land tax (SDLT) for partnerships is complicated. Partnerships are treated as transparent and, in principle, where a partner transfers property to or receives it from the partnership, SDLT is charged on the value of that portion of land treated as moving. HMRC has published guidance in its SDLT manual (http://bit.ly/lQjdya) but it does not cover all the difficult issues that can arise.
Further guidance would be helpful for transfers of interests in property investment partnerships: see para 14 of Schedule 15 to the Finance Act 2003. The transfer of an interest in a partnership that owns land is not generally subject to SDLT. However, the transfer of an interest in a property investment partnership (including land dealer partnerships) can be subject to SDLT on a proportion of the market value of underlying property. A transfer takes place whenever a party acquires or increases a partnership share.
Open-ended partnerships
One difficult area is the rule’s application to open-ended partnerships. SDLT on subscriptions and redemptions from partnerships could be a significant additional cost and administrative burden. Paragraph 14 applies to a “transfer of an interest in a property investment partnership” where “the relevant partnership property includes a chargeable interest”.
However, transfers are divided into type A and type B, with the latter usually not resulting in an SDLT charge if the property has been acquired from third parties. Type A transfers are arrangements where: (a) the whole or part of a partner’s interest is acquired by another party and money or money’s worth consideration is given by or on behalf of that acquiring party; or (b) a party becomes a partner, the interest of an existing partner is reduced or ceases and it makes a withdrawal of money or money’s worth from the partnership (except from resources available to the partnership before the transfer).
It could be that (a) applies where an incoming partner subscribes money to the partnership acquiring a share in the income profits. This may be consideration even if it does not move to the disposing partners. HMRC’s view has been that no SDLT arises because the subscriptions are not instances where consideration is given by or on behalf of the party acquiring the interest, and a new subscriber has no effect on the interests held by other partners.
What if money subscribed passes to existing investors by equalisation payments e_SEmD do these constitute relevant consideration? HMRC has said it does not give rise to a type A transfer because there is no diminution in the partnership interest held by the diluted partner(s).
If redemptions and subscriptions occur as part of an arrangement, there would be a type A transfer. HMRC has said (but not in the manual) that a redemption request from an existing partner satisfied at the same time as the new partner subscribes (from subscription moneys providedby it) or a later redemption request from another partner (satisfied either with subscription moneys from the new partner or profits earned after it subscribed) will not be a type A transfer provided there are no arrangements and the new and existing partners have not made an agreement for the sale of the latter’s interest (for example, if the fund operates matched bargaining).
Anti-avoidance
The anti-avoidance rule in para 17A is also left out by the manual. This charges additional SDLT where, within three years after property is transferred to the partnership by a partner (resulting in a charge on less than 100% of the market value), certain qualifying events occur involving withdrawal from the partnership of money or other value (not income profit) by the partner or the repayment of loans by that partner to the partnership.
The withdrawal/repayment, capped at the property’s market value when transferred, and with credit for earlier charges, is charged to SDLT. It is unclear how the rule deals with partner loans typically made by limited partners. If they are loans, repayment could trigger a charge, which would not be insuperable in investment funds, but could be greater in trading firms. Even without partner loans, if the partner withdraws capital/reduces its interest, it is only withdrawals funded by income profit that escape charge, and not the return of cost of stock. Where there is a loan, any withdrawal of non-income profit is a trigger.
Overall, the guidance is welcome but HMRC’s work is not complete. If the legislation can be refined and, in the anti-avoidance areas, significantly narrowed that would be even better.
Kevin Ashman is a partner and Aaron Burchell is a senior associate at Hogan Lovells