Why don’t Partnerships pay SDLT on land transfers?



With the introduction of interest rate restrictions from 2017/18 for individual Property Investors there has been a lot of interest in incorporating property businesses.

Technically property investment isn’t a business although HMRC seem to have blurred the lines with their Making Tax Digital documents which describe Property Investment as a Business.

The recent clarification from the Ramsay case has meant that even investors with a small portfolio are likely to qualify for incorporation tax relief provided the landlord is sufficiently active in managing their properties. Claiming Incorporation Tax Relief rolls forward the capital gain into the company.

So that leaves SDLT and re-financing costs as the next major hurdles.

The rules on SDLT for Partnerships are in the Finance Act 2003 Schedule 15 and amendments in the Finance Act 2006 Schedule 24.



It is complicated but essentially it comes down to the following formulae

MV x (100 – sum of lower proportions (SLP))%

What this means is that if the land being put into the partnership is effectively retained by the transferor-partner (or persons connected with the transferor) after the transaction, you basically end up with:

MV x (100-100) = £0

So a husband and wife partnership owning 50% each could transfer the property to a company for 50% of the shares each and in theory there would be no SDLT charge.

To qualify as a Partnership or LLP:

  1. You need to be registered with HMRC
  2. You need a partnership agreement
  3. You need separate bank accounts
  4. Leases and Agreements need to be in the name of partnership

HMRC also require that any restructuring is for Commercial Reasons and not to avoid tax, otherwise it will be caught by anti tax avoidance rules.





HMRC have a surprise for your sleeping partner…. it’s a bill for National Insurance

sleeping partner

Until now if you were a sleeping partner – that is, you took no active part in running the business and only supplied capital and took a share of the profits then you were exempt from National Insurance.

But HMRC have changed their mind, in an announcement on 4th April 2013 they said:

HMRC now considers that Sleeping and inactive Limited Partners are—and have in the past been—liable to pay Class 2 National Insurance contributions (NICs) as self employed earners and Class 4 NICs in respect of their taxable profits. “Inactive Limited Partners” are Limited Partners who take no active part in running the business. This view represents a change from that previously held by HMRC and the Department for Work and Pensions.
Sleeping or inactive Limited Partners who have not paid Class 2 or Class 4 NICs for a past period will not be required by HMRC to pay those contributions.
Sleeping and inactive Limited Partners who are not already paying Class 2 NICs should register on form SA401. Such partners should record the nature of the business being carried out at box 15 on the form as either Sleeping Partner or inactive Limited Partner.
Not good news if you’re an investor who wants a share of the profits, sounds like a good reason to convert to a limited company and pay dividends.