Partnerships and Land Transaction Tax: technical guidance

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Partnerships

(paragraph 3)

For the purposes of the LTT, a partnership means:

• a partnership within the Partnership Act 1890
• a limited partnership registered under the Limited Partnerships Act 1907
• a limited liability partnership formed under the Limited Liability Partnerships Act 2000, or
• a firm or entity that is similar to any of the above, but is formed under the laws of a country or territory outside the UK

For the purposes of LTT a chargeable interest held by a partnership is treated as if it is held by or on behalf of the partners and any land transaction entered into for the purposes of a partnership is treated as if it is entered into by or on behalf of the partners and not by the partnership; therefore, the vendor or purchaser of the chargeable interest will be the partners.

These provisions apply for the calculation of LTT for the partnership even if the partnership is regarded as a legal person, or as a body corporate, under the law of the country or territory under which it is formed. One exception is group relief where a limited liability partnership can be treated as a body corporate for the purposes of establishing a group structure.

(paragraph 5) 

Acquiring an interest in a partnership that holds chargeable interests in land is not a land transaction except where the transfer of that partnership interest is as a result of a:

• transfer of a partnership interest pursuant to earlier arrangements, or
• transfer of interest in a property investment partnership

Such an acquisition is charged under the provisions of this Schedule only.

(paragraph 6)

A partnership is treated as the same partnership even where there is change in the membership so long as a person who was a member before the change remains a member after the change.

If, for instance, partners B and C leave a partnership consisting of A, B and C, the partnership ceases to exist. If, at a later date, D joins A in partnership a new partnership has been created.

However, there would be a continuing partnership if D joined the ABC partnership under the same agreement and at the same time as B and C left as there is always more than one partner and that a partner was a member before the change and remains a member after the change.

(paragraph 7)

A partnership is not to be treated as a unit trust scheme or an open-ended investment company.

An ‘ordinary partnership transaction’, subject to the rules concerning the responsibility of partners, representative partners, and joint and several liability of the responsible partners is taxed as any other transaction.

Where a partnership buys or sells a chargeable interest of a property and it is not subject to the special rules listed below then it is an ‘ordinary partnership transaction’:

• transactions involving transfers to a partnership from a partner or certain other persons
• transactions involving transfers from a partnership to a partner or certain other persons
• transactions involving transfers between 2 partnerships
• transactions involving transfers involving a partnership consisting wholly of bodies corporate
• transactions involving transfers to or from a partnership where the chargeable consideration includes rent
• transactions involving transfers of an interest in, and transactions involving, property investment partnerships
• certain transactions involving partnerships where exemptions and reliefs apply

Responsibility of partners

(paragraph 9)

Anything required or authorised to be done by or in relation to the buyer under the transaction must be done by or in relation to all the responsible partners.

The responsible partners in relation to a transaction are those that are members of the partnership at the time of the effective date of the land transaction, and any partner who joins the partnership after the effective date of the transaction.

For practical reasons a partnership may be represented by a representative partner.

Representative partners

(paragraph 10)

A partnership can nominate a representative partner or partners to act on behalf of the responsible partners, including signing or confirming that a return is complete and correct.

A representative partner must be nominated by a majority of the partners and, to be effective, the nomination (and any revocation of the nomination) must be given to the WRA.

Joint and several liability of responsible partners

(paragraph 11)

All the responsible partners have joint and several liability for the payment of LTT (including the recovery of any LTT repaid where that repayment was excessive), any penalties arising from late filing or inaccuracies or any interest charged.

However, a responsible partner is not jointly and severally liable for any tax or interest arising on that tax for a transaction unless the partner was a partner on the effective date of the transaction. In relation to any penalties a responsible partner is not liable to any penalty, or any interest arising on that penalty, unless they were a partner on the day that the penalty arose, or was a partner when the act or omission giving rise to the penalty occurred.

Partnership property

(paragraph 45(1))

A partnership property is an interest or right

• held by or on behalf of a partnership, or by the members of a partnership, 
• for the purposes of the partnership business

These 2 tests must both be satisfied in order for a chargeable interest to be partnership property. Each is a question of fact. Often there will be an agreement between the partners which will put the position beyond doubt.

In practice, whether a chargeable interest is partnership property or not can be decided by reference to whether it is partnership property by virtue of section 20 of the Partnership Act 1890. A chargeable interest acquired, whether by purchase or otherwise, on account of the firm or for the purposes and in the course of the partnership business, will be partnership property for LTT purposes.

The mere fact that a business is carried on in a property belonging to one or more partners does not make that partner’s chargeable interest partnership property. Where a chargeable interest is owned by all the partners whether it is partnership property depends on the basis on which it is held by the co-owners.

It is unlikely that a chargeable interest in which the equitable interests were subject to an express declaration of joint tenancy on acquisition constitutes partnership property unless there is clear evidence of a change of intention by the joint owners to bring the chargeable interest in as an asset of the partnership business.

Partnership share

(paragraph 45(2))

Any reference to a person’s partnership share at any time is to the proportion in which the person is entitled at that time to share in the income profits of the partnership.

Transfer of a chargeable interest

(paragraph 46)

A transfer of a chargeable interest includes:

• the creation of a chargeable interest
• the variation of a chargeable interest, and
• the surrender or release of a chargeable interest

Transfer of chargeable interest to a partnership

(paragraph 47)

A transfer of a chargeable interest to a partnership is any transfer where the chargeable interest becomes partnership property. 

As noted above (‘transfer of a chargeable interest’), property can become partnership property without having to be transferred to a partnership.

Transfer of a chargeable interest from a partnership

(paragraph 49)

A transfer of a chargeable interest from a partnership is any transfer where:

• a chargeable interest that was partnership property ceases to be partnership property, or
• a chargeable interest is granted or created out of partnership property and that interest is not partnership property

As noted above (‘transfer of a chargeable interest’), property can cease to be partnership property without having to be transferred out of a partnership.

Transfer of an interest in a partnership

(paragraph 48)

Where a person acquires a partnership share or a person’s partnership share increases there is a transfer of an interest in the partnership (to that partner and from the other partners).

Market value leases

(paragraph 50)

The market value of a lease on grant is to be determined for the following situations:

• transfer of a chargeable interest to a partnership, or 
• transfer of a chargeable interest from a partnership

In determining the market value of the lease, an obligation of the tenant under the lease is to be taken into account if (but only if) it is an obligation that would not normally count as chargeable consideration, or it is an obligation to make a payment to a person. 

Connected persons

(paragraph 51)

In relation to partnership transactions, connected persons has the same meaning as it has for section 1122 of the Corporation Tax Act 2010, with the exception that subsection 7 (partners connected with each other) is omitted.

Furthermore, in relation to identifying the relevant owner and the corresponding partner for transfers to a partnership and transfers from a partnership section 1122 of the Corporation Tax Act 2010 applies with the omission of subsection (6)(c) to (e) (rules related to a trustee connected with a settlement trust).

Transfer of chargeable interest to a partnership: general

(paragraph 13)

The rules set out in this section apply where a chargeable interest is transferred to a partnership by:

• a partner
• a person who will become a partner as a result of or in return for that transfer, or
• a person connected to either the partner or person who will become a partner

The rules apply whether the transfer is in connection with the formation of a partnership or is a transfer to an existing partnership.

As the transfer to the partnership is by a person who is (or is to become) a partner, or a person connected to the partner, the consideration given for the land transaction is based on the market value of the subject matter of the transfer.

As the partner who is transferring the chargeable interest in the property to the partnership already effectively owns the subject matter of the transfer the rules operate so that only that share of the chargeable interest in the property which is subject to a change in effective economic ownerships is treated as chargeable consideration.

The rules are also subject to any election made by a property-investment partnership to disapply these rules.

A formula is used to determine the chargeable consideration in a land transfer involving the transfer of a chargeable interest to a partnership. 

The formula for calculating the chargeable consideration is:

MV x (100–SLP)%

MV is the market value 
SLP is the sum of the lower proportions.

The sum of lower proportions is to reflect the interest in the subject matter that was owned before and after the transfer by the transferor, and is expressed as a percentage of the ownership retained or treated as retained by the transferor. As per the definitions for the Schedule, the partnership share is based on the proportion in which the person is entitled at that time to share in the income profits of the partnership.

To take a simple example, if one partner transfers a chargeable interest that they have 100% ownership over into a partnership of four partners who each have an equal share in the income profits of the partnership, the partnership will only pay LTT on the 75% to reflect the transferor partner’s 25% interest. This is because the transferor partner effectively owned that share of the chargeable interest in the property before and after the transaction, whereas the three other partners now have an interest of 25% each in the chargeable interest in the property when before the transaction they held no interest in it.

Sum of the lower proportions (‘SLP’)

(paragraph 14)

There is a 5 step process to determine the sum of lower proportions (‘SLP’):

Step 1 - identify the relevant owner or owners. 

Step 2 – for each relevant owner identify the corresponding partner or corresponding partners. If there is no corresponding partner the sum of the lower proportions is zero.

Step 3 – for each relevant owner establish the proportion, based on the share of the income profits of the partnership, of the chargeable interest in the property, to which each relevant owner was entitled immediately before the transaction. Then apportion that proportion between any one or more of that relevant owner’s corresponding partners.

Step 4 - for each corresponding partner find the lower proportion of either:

• the proportion of the interest attributable to the partner, or
• the partner’s partnership share immediately after the transaction

Step 5 - add together the lower proportions in step 4 for each corresponding partner. 

The result is the sum of the lower proportions.

Relevant owner

(paragraph 15)

A person is a relevant owner (step1 of the SLP calculation) if:

• immediately before the transaction, they were entitled to a proportion of the chargeable interest, and
• immediately after the transaction they are a partner in the partnership or connected to a partner.

For the purposes of determining the sum of lower proportions, any person who is a joint tenant is treated as a tenant in common with each tenant holding equal undivided shares in the property. 

Corresponding partner

(paragraph 16)

A person is a corresponding partner (step 2 of the SLP calculation) in relation to a relevant owner if, immediately after the land transaction, the person:

• is a partner, and
• is the relevant owner or is an individual connected with the relevant owner

Proportion of chargeable interest attributable to corresponding partner

(paragraph 17)

The proportion of the chargeable interest attributable to a corresponding partner (step 4 of the SLP calculation) is:

• if the partner is a corresponding partner only in relation to one relevant owner, the proportion (if any) of the chargeable interest is that apportioned to that partner (under step 3 above) in respect of that owner, 
• if the partner is a corresponding partner in relation to more than one relevant owner the proportion is the sum of the proportions (if any) of the chargeable interest apportioned to that partner (under step 3 above) in respect of each of those owners

(paragraph 18)

Where there is:

• a transfer of a chargeable interest to a partnership, including property investment partnerships (‘the land transfer’)
• to which the SLP rules relate, and
• there is a subsequent transfer of an interest in the partnership (‘the partnership transfer’), and
• that transfer of the partnership interest is made by the person who makes the land transfer in relation to the partner transferring a chargeable interest to the partnership, or of a person who is to become a partner in return for transferring a chargeable interest in return for a partnership interest, or a person so connected to a partner or person who is to become a partner, and
• the transfer is made pursuant to arrangements which are or are part of tax avoidance arrangements that existed at the time of the transfer, and
• other than because of these special rules, the transfer of the partnership interest in the partnership is not a chargeable transaction

When these conditions apply the transfer of the interest in the partnership (the ‘partnership transfer’) is deemed to be a land transaction and that deemed land transaction is a chargeable transaction with the partners treated as the buyers.

The chargeable consideration is deemed to equal the proportion of the market value, on the date of the transaction, of the interest transferred by the land transfer. That proportion is:

• where the person making the transfer is not a partner immediately after the partnership transfer that person’s partnership share immediately before the transfer
• where the person was a partner immediately after the partnership transfer the difference between the person’s share before and after the transfer

Where the conditions apply, the partnership transfer and the land transfer are deemed to be linked transactions, and taxed accordingly by the linked transactions rules.

For the purposes of these rules the responsible partners are those who were partners immediately before the transfer and remain so after it, and any person who becomes a partner as result of, or in connection with the transfer.

“Tax avoidance arrangements” has the meaning given by section 31 LTTA.

(paragraph 19)

This rules apply where there is:

• a transfer of a chargeable interest to a partnership (‘the land transfer’)
• to which the LTT SLP rules relate, and
• during the period of 3 years from the effective date of the land transfer a qualifying event occurs, and
• the qualifying event is, or forms part of, a tax avoidance arrangement, and
• at the time of the qualifying event an election has not been made by a property investment partnership to disapply the SLP rules

The following are qualifying events:

1. Withdrawal from the partnership of money or money’s worth which is not income profit, by the relevant person:
   • of capital from that relevant person’s capital account
   • a reduction of the relevant person’s interest in the partnership
   • the relevant person ceasing to be a partner
2. Where a relevant person has made a loan to a partnership, the repayment of all or some of the loan, and
3. Where a relevant person has made a loan to the partnership, a withdrawal from the partnership of money or money’s worth by the relevant person that does not represent income profit.

A ‘qualifying event’ is deemed to be a land transaction and is also therefore a chargeable transaction. The buyers under the deemed transaction are the partners.

The chargeable consideration for the first 3 qualifying events listed above is the value of the money or money’s worth withdrawn from the partnership.

The chargeable consideration for the fourth qualifying event is an amount equal to the monies repaid.

The chargeable consideration for the fifth qualifying event will be the value of the money or money’s worth so far as it does not exceed the amount of the loan made.

Furthermore, the chargeable consideration determined under these rules must not exceed the market value (at the effective date of the land transfer) of the chargeable interest transferred (reduced by any amount that was previously chargeable to tax). 

The ‘relevant person’ is:

• a partner who transfers a chargeable interest to the partnership, 
• a person who transfers a chargeable interest to a partnership in return for a share in the partnership, 
• or a person who is connected to the existing partner or new partner

Where these provisions are triggered and the same event also means that a charge under the rules relating to a transfer of an interest in a property-investment partnership are also triggered the amount of tax payable (if any) in respect of the qualifying event is to be reduced (but not below nil), where applicable, by the amount of tax payable resulting from the transfer of an interest in a property-investment partnership.

“Tax avoidance arrangements” has the meaning given by section 31 LTTA.

Transfer of chargeable interest from a partnership: general

(paragraph 21)

Where a chargeable interest is transferred from a partnership to:

• a person who is or has been one of the partners, or 
• a person connected with such a person 

the rules in this part apply.

As the transfer from the partnership is by a person who is (or is to cease to be) a partner, or a person connected to the person the consideration given for the land transaction is based on the market value of the subject matter of the transfer. The rule for calculating chargeable consideration under the partnership rules overrides the deemed market value rule, where the buyer is a company connected to the seller, etc.

As the person to whom the property is being transferred to already effectively owns an interest in the subject matter of the transfer through their partnership interest, the rules operate so that only the share of the property which is subject to a change in effective economic ownership is treated as chargeable consideration.

These provisions are also subject to the rules in Paragraph 29, that apply to the transfer of a chargeable interest from a partnership to a partnership, and Paragraph 30, that apply to a partnership where all the partners are bodies corporate.

The rules are also subject to any election made by a property-investment partnership to disapply these rules.

A formula is used to determine the chargeable consideration in a land transfer involving the transfer of a chargeable interest from a partnership.

The formula for calculating the chargeable consideration is:

MV x (100–SLP)%

MV is the market value
SLP is the sum of the lower proportions.

The sum of lower proportions is to reflect the interest in the subject matter that was owned before and after the transfer by the transferee, and is expressed as a percentage of the subject matter owned before the transfer by the transferee. As per the definitions for the Schedule, the partnership share is based on the proportion in which the person is entitled at that time to share in the income profits of the partnership.

To take a simple example, if a partnership transfers a chargeable interest that is owned entirely by the partnership of four partners who each have an equal share in the partnership, to one of the partners, that partner will only pay LTT on the 75% to reflect the fact that the partner transferee held a 25% interest through their interest in the partnership. The transferee effectively owned that share before and after the transaction, whereas the 3 other partners now have transferred an interest of 25% each as the property is no longer owned by the partnership.

In the event that the partnership is dissolved or otherwise ceases to exist, the partnership is treated, for LTT purposes, as continuing until the property is distributed.

Sum of the lower proportions (‘SLP’)

(paragraph 22)

There is a 5 step process to determine the sum of lower proportions (‘SLP’):

Step 1 - identify the relevant owner or owners.

Step 2 – for each relevant owner identify the corresponding partner or partners. If there is no corresponding partner the sum of the lower proportions is zero.

Step 3 – for each relevant owner establish the proportion of the chargeable interest to which each owner was entitled immediately after the transaction. Then apportion that proportion between any one or more of that relevant owner’s corresponding partners.

Step 4 - for each corresponding partner find the lower proportion of either:

• the proportion of the interest attributable to the partner, or
• the partnership share attributable to the partner.

Step 5 - add together the lower proportions in step 4 for each corresponding partner. 

The result is the sum of the lower proportions.

Relevant owner

(paragraph 23)

A person is a relevant owner (step1 of the SLP calculation) if:

• immediately after the transaction, they were entitled to a proportion of the chargeable interest, and
• immediately before the transaction they are a partner in the partnership or connected to a partner.

For the purposes of determining the sum of lower proportions, any person who is a joint tenant is treated as a tenant in common with each tenant holding equal undivided shares in the property.

Corresponding partner

(paragraph 24)

A person is a corresponding partner (step 2 of the SLP calculation) in relation to a relevant owner if, immediately before the land transaction, the person:

• was a partner, and
• was the relevant owner or is an individual connected with the relevant owner

Therefore, if the person is not the relevant owner and is a body corporate, or is otherwise not an individual, they are not a corresponding partner.

However, if that person is a company and it holds the property as a trustee and it is connected with the relevant owner only because of section 1122(6) of the Corporation Tax Act 2010 that company may be treated as an individual for these purposes and therefore can be a corresponding partner.

Proportion of chargeable interest attributable to corresponding partner

(paragraph 25)

The proportion of the chargeable interest attributable to a corresponding partner (step 4 of the SLP calculation) is:

• if the partner is a corresponding partner only in relation to one relevant owner, the proportion (if any) of the chargeable interest is that apportioned to that partner (under step 3 above) in respect of that owner
• if the partner is a corresponding partner in relation to more than one relevant owner the proportion is the sum of the proportions (if any) of the chargeable interest apportioned to that partner (under step 3 above) in respect of each of those owners

(paragraph 26)

In order to establish the lower proportion under step 4 of the sum of the lower proportions (‘SLP‘) calculation of the relevant chargeable interest that was transferred to the partnership in a transaction that occurred before 20 October 2003, these special rules must be used. A relevant chargeable interest that became partnership property before 20 October 2003 will be a chargeable interest that was subject to the stamp duty rules (note that Stamp Duty is not the same as SDLT).

In relation to such a chargeable interest the partnership share attributable to a corresponding partner is established using the following 3 steps.

Step 1 – establish the partner’s share on relevant date 

The relevant date is:

• if the partner was a partner on 19 October 2003 their partnership share on that date 
• if the partner became a partner after that date their partnership share on that date

The partnership share is the partner’s share in the income profits of the partnership.

Step 2 – add any subsequent increases to the partner’s partnership share

Add any increases to the partner’s partnership share which occurred:

• in the period beginning with the day after the relevant date and ending immediately before the transaction to which the SLP calculation relates, and 
• the increase in the partnership share was effected by an instrument stamped with ad valorem stamp duty

Step 3 - deduct any subsequent decreases to the partner’s partnership share

Deduct any decreases to the partner’s partnership share which occurred in the period beginning with the day after the relevant date and ending immediately before the transaction to which the SLP calculation relates.

The result of these 3 steps is the partnership share attributable to the partner. 

If the partner ceased to be a partner before 19 October 2003 the partnership share attributable to that partner is zero.

A relevant chargeable interest is:

• the chargeable interest that ceases to be partnership property and to which the SLP calculation is being carried out; or
• where the transaction to which the SLP calculation is being carried out is the creation of a chargeable interest, the chargeable interest out of which the interest is created

(paragraph 26)

In order to establish the lower proportion under step 4 of the sum of the lower proportions (‘SLP’) calculation of the ‘relevant chargeable interest’ that was transferred to the partnership in a transaction that occurred on or after 20 October 2003, these special rules must be used.

A relevant chargeable interest is:

• the chargeable interest that ceases to be partnership property and to which the SLP calculation is being carried out, or
• where the transaction to which the SLP calculation is being carried out is the creation of a chargeable interest, the chargeable interest out of which the interest is created

If this paragraph applies and neither of the following two conditions apply the partnership share attributable will be zero. The relevant conditions are:

• the instrument by which the transfer was effected was stamped with ad valorem stamp duty, or
• any LTT, or where relevant stamp duty land tax, payable in respect to the transfer has been paid. 

In relation to such a chargeable interest, and where one of the conditions concerning payment of stamp duty etc. apply, the partnership share attributable to a corresponding partner is established using the following 3 steps.

Step 1 – establish the partner’s share on relevant date

The relevant date is:

• if the partner was a partner on the effective date of the transfer of the relevant chargeable interest to the partnership, that date
• if the partner became a partner after that date their partnership share on that date

The partnership share is the partner’s share in the income profits of the partnership.

Step 2 – add any subsequent increases to the partner’s partnership share

Add any increases to the partner’s partnership share which occurred:

• in the period beginning with the day after the relevant date and ending immediately before the transaction to which the SLP calculation relates, and 
• if the increase took place on or before 22 July 2004, the increase in the partnership share was effected by an instrument stamped with ad valorem stamp duty, or
• if the increase occurred after 22 July 2004, any LTT, or where relevant stamp duty land tax, in relation to the increase in the partnership share has been paid

Part 3 of Schedule 15 Finance Act 2003 was replaced by Schedule 41 Finance Act 2004 from 23 July 2004.

Step 3 - deduct any subsequent decreases to the partner’s partnership share

Deduct any decreases to the partner’s partnership share which occurred in the period beginning with the day after the relevant date and ending immediately before the transaction to which the SLP calculation relates.

The result of these 3 steps is the partnership share attributable to the partner.

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 that partner is zero.

Transfer of a chargeable interest from a partnership to a partnership

(paragraph 29)

Where there is a transfer of a chargeable interest from a partnership to another partnership and the transfer is one to which both the rules relating to the sum of the lower proportions (‘SLP’) for a transfer to a partnership and the transfer from a partnership would, except for this section apply, then the following rules ensure that both sets of rules do not apply together. 

The taxpayer must calculate the chargeable consideration under both the transfer to a partnership and the transfer from a partnership rules and then calculate the tax on the higher of the 2 chargeable consideration amounts. If there are no partners in common between the 2 partnerships the SLP will be zero and the transaction will be an ‘ordinary partnership transaction’.

If the whole or part of the consideration given is rent then, for a partnership to partnership transfer where there are partners in common, the rules relating to partnership transactions and leases do not apply solely as set out in those rules.

Instead, the tax chargeable in respect of the consideration that consists of rent is the greater of:

• what the tax chargeable would be if the rules relating to partnership transactions and leases applied in relation to a transaction which the transfer to a partnership rules apply to, and
• what the tax chargeable would be if the rules relating to partnership transactions and leases applied in relation to a transaction which the transfer from a partnership rules apply to

The relevant rent lease rules that provide for the zero rate band for the ‘consideration other than rent’ to be disapplied where the consideration that consists of rent is greater than the relevant amount also applies in relation to transfers from a partnership to a partnership.

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

(paragraph 30)

Where there is a transfer of a chargeable interest from a partnership where all the partners are bodies corporate, to one of those partners or a person connected to that partner and the sum of lower proportions is 75% or more, the chargeable consideration for the land transfer is the market value of the interest that is transferred.

If any of the chargeable consideration includes rent, then the chargeable consideration is the Net Present Value of the rent over the term of the lease as well as the market value of the lease.

It may be possible for group relief to be claimed. However, if the partners are not all part of the same group and the person to whom the interest is transferred is not in that same group, group relief cannot be claimed.

Leases: Transfer of a chargeable interest to or from a partnership: chargeable consideration including rent.

(paragraph 31)

Where a partnership is:

• granted a lease by a partner or person who becomes a partner as a result or in connection with the grant of that lease, or 
• granting a lease to a partner, or person who has been a partner

the rules relating to a transfer to a partnership and a transfer from a partnership are modified (see paragraph 31 of Schedule 7 LTTA).

LTT is charged on:

• a proportion of the Net Present Value (NPV) of the rent payable over the term of the lease, and
• a proportion of any consideration other than rent and market value of the lease

The NPV of the rent over the term of the lease is determined according the normal rules applying to leases. Of this amount, the relevant chargeable proportion is determined as:

(100 – SLP)%

where ‘SLP‘ is the sum of the lower proportions.

Where there is consideration other than rent (for example a premium) the chargeable consideration is determined in the same way as the acquisition of any other chargeable interest in land, that is it is equal to:

MV x (100-SLP)%

where MV is the market value and SLP is the sum of the lower proportions.

Where a lease is transferred or granted from a partnership, and all the partners are bodies corporate to another body corporate that is or has been a partner, and the SLP is 75% or more, then the chargeable consideration is taken to be the market value of the interest transferred and if all the relevant conditions are met, group relief may be claimed.

Meaning of property-investment partnership

(paragraph 33)

A property investment partnership (‘PIP‘) is a partnership whose only or main activity is investing or dealing in chargeable interests. A partnership will still be treated as a PIP even where it is also renovating, constructing, etc. the buildings it is investing in (‘construction operations’ as defined by section 74 of the Finance Act 2004). In identifying whether a partnership is a PIP consideration is also to be given to the use to which property outside Wales is used, where that property would be a chargeable interest if it were in Wales. A PIP, for example, will not include a farming partnership, nor will it include a house builder whose only or main activity is the construction and sale of property to third parties (even where some properties may occasionally be retained and rented out because no buyer can be found) because most of its profit is generated by building houses not dealing in the land. Whether a partnership‘s only or main activity is investing or dealing in chargeable interests will be a question of fact.

Transfer of an interest in a property-investment partnership

(paragraph 34)

Where there is a transfer of an interest in a property-investment partnership (‘PIP’) and the ‘relevant partnership property‘ includes a chargeable interest, the transfer of that interest is treated as a land transaction and therefore a chargeable transaction for the purposes of this part of this schedule. The buyer in that land transaction is the person who becomes a partner, or increases their partnership share, as a result of the transaction.
 
The chargeable consideration is not determined in accordance with any other provisions but is an amount equal to a proportion of the market value of relevant partnership property. The proportion is established in one of the 2 following ways:

• if a person acquiring an interest in the partnership is not a partner prior to the transfer, their share in the partnership immediately after the transfer, or
• if the person acquiring an interest in the partnership is a partner prior to the transfer, the difference between the partnership share before and after the transfer

The transfer of an interest in a property investment partnership is treated as a chargeable interest for the purposes of the withdrawal of group relief.

There are 2 different types of transfer of an interest in a property investment-partnership, a Type A transfer or a Type B transfer.

Type A transfer

A Type A transfer is a transfer where:

• the whole or part of a partner’s interest is acquired by another partner, or another person, and money or money’s worth is given by the partner or person acquiring the interest, or
• a person becomes a partner, and the interest of an existing partner is reduced (or they leave the partnership) and there is a withdrawal of money or money’s worth by the existing partner (other than of money or money’s worth that was available to the partnership prior to the transfer)

‘Relevant partnership property‘ for a Type A transfer is all the chargeable interests held by a partnership immediately after the transfer other than:

• any chargeable interest transferred to the partnership as part of the transaction;
• market rent leases, and
• any chargeable interest that is not attributable economically to the interest in the partnership that is being transferred

Type B transfer

A Type B transfer is any other transfer of a partnership interest in a PIP that is not a Type A transfer.

‘Relevant partnership property‘ for a Type B transfer is all the chargeable interests held by a partnership immediately after the transfer other than: 

• any chargeable interest transferred to the partnership as part of the transaction
• market rent leases
• any chargeable interest that is not attributable economically to the interest in the partnership that is being transferred
• any chargeable interest that was transferred to the partnership on or before 22 July 2004
• any chargeable interest where an election to disapply the rules relating to the transfer of a chargeable interest to a partnership has been made, and
• any other chargeable interest where the transfer to the partnership was not made by a partner, someone who become a partner as a result of the transfers or by a person connected with a partner and to which the sum of the lower proportions rules were applied

Exclusion of market rent leases

(paragraph 35)

A lease held as partnership property immediately after a transfer of an interest in the partnership is not relevant partnership property for either a Type A or a Type B transfer if the following 4 conditions are met:

• condition 1 is that:
  • no chargeable consideration other than rent has been given in respect of the grant of the lease, and
  • 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.
• condition 2 is that the rent payable under the lease as granted was a ‘market rent’ at the time of the grant.
• condition 3 is that:
  • the term of the lease is 5 years or less, or
  • if the term of the lease is more than 5 years:
    • the lease provides for the rent payable under it to be reviewed at least once in every 5 years of the term, and
    • the rent payable under the lease as a result of a review is required to be a market rent at the review date.
• condition 4 is that there has been no change to the lease since it was granted which would have the effect of making the rent payable under the lease less than a market rent

The ‘market rent’ of a lease is the rent which the lease might reasonably be expected to fetch at that time in the open market.

A ‘review date’ is a date from which the rent determined as a result of a rent review is payable.

When there is a transfer of a chargeable interest to a property-investment partnership (‘PIP’), the buyer can elect for the rules in relation to transfers of a chargeable interest to a partnership to not apply.

Where such an election is made:

• the rules in relation to transfers of a chargeable interest from a partnership, are also disapplied (and therefore paragraphs 18 & 19 also do not apply)
• the chargeable consideration is taken to be the market value of the chargeable interest, and 
• the transaction is treated as an ordinary partnership transaction

An election under this paragraph must be included in the LTT return made in respect of the transaction or in an amendment of that return. Where the return is made online, the election must be sent at the same time as making the return to:

Welsh Revenue Authority
PO Box 108
Merthyr Tydfil
CF47 7DL (if by post)

or submit via a WRA Contact Us form.

The election must state the taxpayer’s name, the address of the property concerned and the reference of the return which relates to the acquisition of the property by the PIP.

The election is irrevocable and a return may not be amended so as to withdraw the election.

Conversely, it is possible for an amendment to the return to be made in which an election is made. Where an election is made in relation to a transaction (referred to as the ‘main transaction‘) in an amendment to the return:

• the election has effect as if it had been made on the date on which the return was made, and
• any return in respect of an ‘affected transaction‘ may be amended (within the period allowed for amendment of that return) to take account of that election

An ‘affected transaction’, in relation to the main transaction, means a PIP transaction with an effective date on or after the effective date of the main transaction. 

Partnership interests: application of provisions about exchange

(paragraph 37)

Where the exchange rules apply to the acquisition of an interest in a property-investment partnership (‘PIP’) because the consideration for entering into that transaction is entering into a land transaction, the interest in the PIP is treated as though it were a major interest in land (if the relevant partnership property includes a major interest in land). This rule provides that the rules for exchanges can then operate to the exchange (as the interests exchanged must be major interests). However, the rules about the division or partition of a chargeable interest do not apply.

The ‘relevant partnership property’ has the same meaning as it does for a Type A or Type B transfer.

The exemption from the charge to tax where there is no chargeable consideration does not apply to:

• transactions involving the transfer of a chargeable interest to a partnership
• transactions involving the transfer of a chargeable interest from a partnership
• transfers of a partnership interests pursuant to tax avoidance arrangements, or
• a transfer of an interest in a property investment partnership

Subject to the specific rules related to the application of group and charities relief any other provision affording exemption or relief from LTT applies to partnership transactions.

Application of group relief

(paragraph 40)

Group relief is available in transactions involving partnerships where the conditions for that relief are met.

Specific rules apply where: 

• the transaction is one where there is a transfer of a chargeable interest to a partnership by a partner, a person who becomes a partner as a result of the transfer, or a connected person, and 
• the transaction is a chargeable transaction because it is pursuant to tax avoidance arrangements

Where this situation arises, the group relief withdrawal rules are to be read with a number of substitutions (see para 40 of Schedule 7 LTTA). 

The primary requirement of group relief is whether the companies concerned are within a group structure and this depends upon the status of the companies involved: they must be bodies corporate and, to establish a group structure, they must have issued share capital. It should be noted though that a limited liability partnership is a body corporate and can therefore be the parent of a group of companies. It cannot, however, be a subsidiary or sister company as it has no issued share capital. Furthermore, property cannot be transferred to the limited liability partnership and benefit from a claim to group relief.

Group relief is withdrawn where a body corporate partner who was a partner at the effective date of the acquisition, which is relieved from charge because of a claim to group relief by the partner, ceases to be a member of the same group as the seller before the end of the period of 3 years beginning with the effective date of the transaction, or in pursuance of, or in connection with, arrangements made before the end of that period. References to the ‘buyer’ in the rules for group relief are to be read as references to the relevant partner.

Where group relief is partially withdrawn, the amount of tax chargeable is an appropriate proportion having regard to the subject matter of the relevant transaction, and what is held at the relevant time by, or on behalf of the partnership, and to the proportion in which the relevant partner is entitled at the relevant time to share in the income profits of the partnership.

Sum of the lower proportions: connected companies

(paragraph 41)

When calculating the sum of the lower proportions for a transaction involving a transfer to a partnership, by a partner, a person who becomes a partner as a result of the transfer, or a connected person, and a company (a connected company) would be a corresponding partner of a relevant owner (but for the rule that it applies only to individuals) and the 2 companies are in the same group, the group relief rules are to be read with a number of substitutions (see para 4 of Schedule 7 LTTA). The rule permits the tax charge, in respect of the transaction, to be reduced to the amount that would have been payable had the connected company been a corresponding partner of the original owner for the purposes of calculating the sum of the lower proportions (‘SLP’).

Treatment of partnerships for group relief purposes

The status of a partnership for group relief purposes depends on the nature of that partnership.

The status of the partnership is relevant for group relief claims, despite liability to LTT otherwise falling to the partners, rather than the partnership as a separate entity. A transfer of a chargeable interest to or from a partnership means that the partnership itself is ‘looked through’ with the partners being the persons liable to LTT.

When looking at transfers to or from group companies where there is a partnership in the group structure, the type of partnership determines whether the provisions of group relief can apply.

Partnerships formed under the laws of England and Wales; E&W Partnerships and E&W Limited Partnerships have no legal personality and are therefore transparent for UK taxation purposes.

Scottish Partnerships and Scottish Limited Partnerships are not bodies corporate and therefore cannot be members of an LTT group, but they do have legal personality and can own shares in a subsidiary. This means a Scottish Partnership causes a break in the group structure.

Limited Liability Partnerships (wherever registered in the UK) are bodies corporate – they therefore can be the parent of a group as they are both bodies corporate and capable of owning the shares in the subsidiary companies. However, they also have the effect of breaking a group as the LLP does not have issued share capital.

Non-UK partnerships are to be treated for the purposes of LTT in the manner of the UK partnership it most closely resembles.

Application of charities relief

(paragraph 42) 

Where the conditions for charities relief are met the relief applies to all partnership transactions relating to transfers of an interest in a partnership or an interest in a property-investment partnership. However, the charities relief rules are to be read as though modified so as to provide for the relief to be available (see paragraph 42 of Schedule 7 LTTA).

Charities relief is available in these circumstances if the transferee is a charity and every chargeable interest held as partnership property immediately after the transfer must be held for qualifying charitable purposes.

Notification of transfer of partnership interest

(paragraph 44)

A transaction which is a chargeable transaction because it is either:

• a transfer of an interest in a property-investment partnership and the relevant partnership property includes a chargeable interest, or
• a transfer of a partnership interest pursuant to tax avoidance arrangements

is a notifiable transaction if (but only if) there is tax chargeable at a rate of more than 0% or any amount in respect to which tax would be chargeable but for a relief having been claimed.

(paragraph 43)

A number of modifications (see paragraph 43 of Schedule 7 LTTA) are applied to the rules in the TCMA regarding:

• the making of assessments
• the time limit for WRA assessments
• claims for repayment
• assessment of claimant in connection to a claim
• information notices
• taxpayer notices