Section 304

SCHEDULE 41 Stamp duty land tax: application to certain partnership transactions

1 In Schedule 15 to the Finance Act 2003 (c. 14) (stamp duty land tax: partnerships), for Part 3 (transactions excluded from stamp duty land tax) substitute—

“Part 3 Transactions to which special provisions apply

Introduction

9 (1) This Part of this Schedule applies to certain transactions involving—

(a) the transfer of a chargeable interest to a partnership (paragraph 10),

(b) the transfer of an interest in a partnership (paragraphs 14, 17, 31 and 32), or

(c) the transfer of a chargeable interest from a partnership (paragraph 18).

(2) References in this Part of this Schedule to the transfer of a chargeable interest include—

(a) the grant or creation of a chargeable interest,

(b) the variation of a chargeable interest, and

(c) the surrender, release or renunciation of a chargeable interest.

Transfer of chargeable interest to a partnership: general

10 (1) This paragraph applies where—

(a) a partner transfers a chargeable interest to the partnership, or

(b) a person transfers a chargeable interest to a partnership in return for an interest in the partnership, or

(c) a person connected with—

(i) a partner, or

(ii) a person who becomes a partner as a result of or in connection with the transfer,

transfers a chargeable interest to the partnership.

It applies whether the transfer is in connection with the formation of the partnership or is a transfer to an existing partnership.

(2) The chargeable consideration for the transaction shall (subject to paragraph 13) be taken to be equal to—

(3) The relevant chargeable proportion in relation to the market value of the interest transferred is—

(4) The relevant chargeable proportion in relation to the actual consideration for the transaction is—

(5) Paragraph 12 provides for determining the sum of the lower proportions.

(6) Paragraph 11 applies (instead of sub-paragraphs (2) to (5)) if the whole or part of the chargeable consideration for the transaction is rent.

(7) Paragraphs 6 to 8 (responsibility of partners) have effect in relation to a transaction to which this paragraph applies, but the responsible partners are—

(a) those who were partners immediately before the transfer and who remain partners after the transfer, and

(b) any person becoming a partner as a result of, or in connection with, the transfer.

Transfer of chargeable interest to a partnership: chargeable consideration including rent

11 (1) This paragraph applies in relation to a transaction to which paragraph 10 applies where the whole or part of the chargeable consideration for the transaction is rent.

(2) Schedule 5 provides for the calculation of the tax chargeable in respect of the transaction, subject to the following provisions of this paragraph.

(3) Paragraph 2 of Schedule 5 (calculation of tax chargeable in respect of rent) has effect as if—

(a) for “the net present value of the rent payable over the term of the lease” there were substituted “the relevant chargeable proportion of the net present value of the rent payable over the term of the lease”, and

(b) for “the net present values of the rent payable over the terms of all the leases” there were substituted “the relevant chargeable proportions of the net present values of the rent payable over the terms of all the leases”.

(4) If there is chargeable consideration other than rent, that chargeable consideration shall be taken to be equal to—

(5) If there is no chargeable consideration other than rent—

(a) there shall (despite that) be taken to be chargeable consideration other than rent (in particular for the purposes of paragraph 9 of Schedule 5), and

(b) that chargeable consideration shall be taken to be equal to—

(6) The relevant chargeable proportion in relation to—

(a) the net present value of the rent payable over the term of a lease, or

(b) the market value of the interest transferred,

is—

(7) The relevant chargeable proportion in relation to the actual consideration other than rent is—

(8) Paragraph 12 provides for determining the sum of the lower proportions.

(9) This paragraph is subject to paragraph 13.

Transfer of chargeable interest to a partnership: sum of the lower proportions

12 (1) The sum of the lower proportions in relation to a transaction to which paragraph 10 applies is determined as follows:—

Step One

Identify the relevant owner or owners.

A person is a relevant owner if—

Step Two

For each relevant owner, identify the corresponding partner or partners.

A person is a corresponding partner in relation to a relevant owner if, immediately after the transaction—

Step Three

For each relevant owner, find the proportion of the chargeable interest to which he was entitled immediately before the transaction.

Apportion that proportion between any one or more of the relevant owner’s corresponding partners.

Step Four

Find the lower proportion for each person who is a corresponding partner in relation to one or more relevant owners.

The lower proportion is—

The proportion of the chargeable interest attributable to the partner is—

Step Five

Add together the lower proportions of each person who is a corresponding partner in relation to one or more relevant owners.

The result is the sum of the lower proportions.

(2) For the purposes of this paragraph persons who are entitled to a chargeable interest as beneficial joint tenants (or, in Scotland, as joint owners) shall be taken to be entitled to the chargeable interest as beneficial tenants in common (or, in Scotland, as owners in common) in equal shares.

Transfer of chargeable interest to a partnership consisting wholly of bodies corporate

13 (1) This paragraph applies where—

(a) there is a transaction to which paragraph 10 applies;

(b) immediately after the transaction all the partners are bodies corporate;

(c) the sum of the lower proportions is 75 or more.

(2) Paragraphs 10 and 11 have effect with these modifications.

(3) In paragraph 10, for sub-paragraphs (2) to (5) substitute—

“(2) The chargeable consideration for the transaction shall be taken to be equal to the market value of the interest transferred.”.

(4) In paragraph 10(6), for “sub-paragraphs (2) to (5)” substitute “sub-paragraph (2)”.

(5) In paragraph 11, omit sub-paragraphs (3) and (6) to (8).

(6) In paragraph 11, for sub-paragraph (4) substitute—

“(4) If there is chargeable consideration other than rent, that chargeable consideration shall be taken to be equal to the market value of the interest transferred.”.

(7) In paragraph 11, for sub-paragraph (5)(b) substitute—

“(b) that chargeable consideration shall be taken to be equal to the market value of the interest transferred.”.

(8) Paragraph 12 provides for determining the sum of the lower proportions.

Transfer of partnership interest: consideration given and chargeable interest held

14 (1) This paragraph applies where—

(a) there is a transfer of an interest in a partnership,

(b) consideration is given for the transfer, and

(c) the relevant partnership property includes a chargeable interest.

(2) The transfer—

(a) shall be taken for the purposes of this Part to be a land transaction;

(b) is a chargeable transaction.

(3) The purchaser under the transaction is the person who acquires an increased partnership share or, as the case may be, becomes a partner in consequence of the transfer.

(4) Consideration is regarded as given for the transfer—

(a) in a case within paragraph 36(a), if consideration in money or money’s worth is given by or on behalf of the person acquiring the interest;

(b) in a case within paragraph 36(b), if there is a withdrawal of money or money’s worth from the partnership by the person reducing his interest or ceasing to be a partner.

(5) The “relevant partnership property”, in relation to a transfer of an interest in a partnership, is every chargeable interest held as partnership property immediately after the transfer, other than—

(a) any interest that was transferred to the partnership in connection with the transfer;

(b) a lease to which paragraph 15 (exclusion of market rent leases) applies.

(6) The chargeable consideration for the transaction shall be taken to be equal to a proportion of the market value of the relevant partnership property.

(7) That proportion is—

(a) if the person acquiring the interest in the partnership was not a partner before the transfer, his partnership share immediately after the transfer;

(b) if he was a partner before the transfer, the difference between his partnership share before and after the transfer.

Exclusion of market rent leases

15 (1) A lease held as partnership property immediately after a transfer of an interest in the partnership is not relevant partnership property for the purposes of paragraph 14(5) if the following four conditions are met.

(2) The first condition is that—

(a) no chargeable consideration other than rent has been given in respect of the grant of the lease, and

(b) no arrangements are in place at the time of the transfer for any chargeable consideration other than rent to be given in respect of the grant of the lease.

(3) The second condition is that the rent payable under the lease as granted was a market rent at the time of the grant.

(4) The third condition is that—

(a) the term of the lease is 5 years or less, or

(b) if the term of the lease is more than 5 years—

(i) the lease provides for the rent payable under it to be reviewed at least once in every 5 years of the term, and

(ii) the rent payable under the lease as a result of a review is required to be a market rent at the review date.

(5) The fourth condition is that there has been no change to the lease since it was granted which is such that, immediately after the change has effect, the rent payable under the lease is less than a market rent.

(6) The market rent of a lease at any time is the rent which the lease might reasonably be expected to fetch at that time in the open market.

(7) A review date is a date from which the rent determined as a result of a rent review is payable.

Partnership interests: application of provisions about exchanges etc.

16 (1) Where paragraph 5 of Schedule 4 (exchanges) applies to the acquisition of an interest in a partnership in consideration of entering into a land transaction with an existing partner, the interest in the partnership shall be treated as a major interest in land for the purposes of that paragraph if the relevant partnership property includes a major interest in land.

(2) In sub-paragraph (1) “relevant partnership property” has the meaning given by paragraph 14(5).

(3) The provisions of paragraph 6 of Schedule 4 (partition etc: disregard of existing interest) do not apply where this paragraph applies.

Transfer of partnership interest pursuant to earlier arrangements

17 (1) This paragraph applies where—

(a) there is a transfer of a chargeable interest to a partnership (“the land transfer”);

(b) the land transfer falls within paragraph (a), (b) or (c) of paragraph 10(1);

(c) there is subsequently a transfer of an interest in the partnership (“the partnership transfer”);

(d) the partnership transfer is made—

(i) if the land transfer falls within paragraph 10(1)(a) or (b), by the person who makes the land transfer;

(ii) if the land transfer falls within paragraph 10(1)(c), by the partner concerned;

(e) the partnership transfer is made pursuant to arrangements that were in place at the time of the land transfer;

(f) the partnership transfer is not (apart from this paragraph) a chargeable transaction.

(2) The partnership transfer—

(a) shall be taken for the purposes of this Part to be a land transaction;

(b) is a chargeable transaction.

(3) The partners shall be taken to be the purchasers under the transaction.

(4) The chargeable consideration for the transaction shall be taken to be equal to a proportion of the market value, as at the date of the transaction, of the interest transferred by the land transfer.

(5) That proportion is—

(a) if the person making the partnership transfer is not a partner immediately after the transfer, his partnership share immediately before the transfer;

(b) if he is a partner immediately after the transfer, the difference between his partnership share before and after the transfer.

(6) The partnership transfer and the land transfer shall be taken to be linked transactions.

(7) Paragraphs 6 to 8 (responsibility of partners) have effect in relation to the partnership transfer, but the responsible partners are—

(a) those who were partners immediately before the transfer and who remain partners after the transfer, and

(b) any person becoming a partner as a result of, or in connection with, the transfer.

Transfer of chargeable interest from a partnership: general

18 (1) This paragraph applies where a chargeable interest is transferred—

(a) from a partnership to a person who is or has been one of the partners, or

(b) from a partnership to a person connected with a person who is or has been one of the partners.

(2) The chargeable consideration for the transaction shall (subject to paragraph 24) be taken to be equal to—

(3) The relevant chargeable proportion in relation to the market value of the interest transferred is—

(4) The relevant chargeable proportion in relation to the actual consideration for the transaction is—

(5) Paragraph 20 provides for determining the sum of the lower proportions.

(6) Paragraph 19 applies (instead of sub-paragraphs (2) to (5)) if the whole or part of the chargeable consideration for the transaction is rent.

(7) For the purposes of this paragraph property that was partnership property before the partnership was dissolved or otherwise ceased to exist shall be treated as remaining partnership property until it is distributed.

Transfer of chargeable interest from a partnership: chargeable consideration including rent

19 (1) This paragraph applies in relation to a transaction to which paragraph 18 applies where the whole or part of the chargeable consideration for the transaction is rent.

(2) Schedule 5 provides for the calculation of the tax chargeable in respect of the transaction, subject to the following provisions of this paragraph.

(3) Paragraph 2 of Schedule 5 (calculation of tax chargeable in respect of rent) has effect as if—

(a) for “the net present value of the rent payable over the term of the lease” there were substituted “the relevant chargeable proportion of the net present value of the rent payable over the term of the lease”, and

(b) for “the net present values of the rent payable over the terms of all the leases” there were substituted “the relevant chargeable proportions of the net present values of the rent payable over the terms of all the leases”.

(4) If there is chargeable consideration other than rent, that chargeable consideration shall be taken to be equal to—

(5) If there is no chargeable consideration other than rent—

(a) there shall (despite that) be taken to be chargeable consideration other than rent (in particular for the purposes of paragraph 9 of Schedule 5), and

(b) that chargeable consideration shall be taken to be equal to—

(6) The relevant chargeable proportion in relation to—

(a) the net present value of the rent payable over the term of a lease, or

(b) the market value of the interest transferred,

is—

(7) The relevant chargeable proportion in relation to the actual consideration other than rent is—

(8) Paragraph 20 provides for determining the sum of the lower proportions.

(9) This paragraph is subject to paragraph 24.

Transfer of chargeable interest from a partnership: sum of the lower proportions

20 (1) The sum of the lower proportions in relation to a transaction to which paragraph 18 applies is determined as follows:—

Step One

Identify the relevant owner or owners.

A person is a relevant owner if—

Step Two

For each relevant owner, identify the corresponding partner or partners.

A person is a corresponding partner in relation to a relevant owner if, immediately before the transaction—

Step Three

For each relevant owner, find the proportion of the chargeable interest to which he is entitled immediately after the transaction.

Apportion that proportion between any one or more of the relevant owner’s corresponding partners.

Step Four

Find the lower proportion for each person who is a corresponding partner in relation to one or more relevant owners.

The lower proportion is—

The proportion of the chargeable interest attributable to the partner is—

Paragraph 21 provides for determining the partnership share attributable to the partner.

Step Five

Add together the lower proportions of each person who is a corresponding partner in relation to one or more relevant owners.

The result is the sum of the lower proportions.

(2) For the purposes of this paragraph persons who are entitled to a chargeable interest as beneficial joint tenants (or, in Scotland, as joint owners) shall be taken to be entitled to the chargeable interest as beneficial tenants in common (or, in Scotland, as owners in common) in equal shares.

Transfer of chargeable interest from a partnership: partnership share attributable to partner

21 (1) This paragraph provides for determining the partnership share attributable to a partner for the purposes of paragraph 20 (1) (see Step Four).

(2) Paragraph 22 applies for determining the partnership share attributable to a partner where—

(a) the effective date of the transfer of the relevant chargeable interest to the partnership was before 20th October 2003, or

(b) the effective date of the transfer of the relevant chargeable interest to the partnership was on or after that date and—

(i) the instrument by which the transfer was effected has been duly stamped with ad valorem stamp duty, or

(ii) any tax payable in respect of the transfer has been duly paid under this Part.

(3) Where the effective date of the transfer of the relevant chargeable interest to the partnership was on or after 20th October 2003 but neither of the conditions in sub-paragraphs (i) and (ii) of sub-paragraph (2)(b) is met, the partnership share attributable to the partner is zero.

(4) The relevant chargeable interest is—

(a) the chargeable interest which ceases to be partnership property as a result of the transaction to which paragraph 18 applies, or

(b) where the transaction to which paragraph 18 applies is the grant or creation of a chargeable interest, the chargeable interest out of which that interest is granted or created.

22 (1) Where this paragraph applies, the partnership share attributable to the partner is determined as follows:—

Step One

Find the partner’s actual partnership share on the relevant date.

In a case falling within paragraph 21(2)(a), the relevant date—

In a case falling within paragraph 21(2)(b), the relevant date—

Step Two

Add to that partnership share any increases in the partner’s partnership share which—

The result is the increased partnership share.

An increase counts for the purpose of paragraph (b) only if—

Step Three

Deduct from the increased partnership share any decreases in the partner’s partnership share which occur in the period starting on the day after the relevant date and ending immediately before the transaction to which paragraph 18 applies.

The result is the partnership share attributable to the partner.

(2) If the effect of applying Step Three would be to reduce the partnership share attributable to the partner below zero, the partnership share attributable to the partner is zero.

(3) In a case falling within paragraph 21(2)(a), if the partner ceased to be a partner before 19th October 2003, the partnership share attributable to the partner is zero.

(4) In a case falling within paragraph 21(2)(b), if the partner ceased to be a partner before the effective date of the transfer of the relevant chargeable interest to the partnership, the partnership share attributable to the partner is zero.

(5) Paragraph 21(4) (relevant chargeable interest) applies for the purposes of this paragraph.

Transfer of chargeable interest from a partnership to a partnership

23 (1) This paragraph applies where—

(a) there is a transfer of a chargeable interest from a partnership to a partnership, and

(b) the transfer is both—

(i) a transaction to which paragraph 10 applies, and

(ii) a transaction to which paragraph 18 applies.