HMRC Special provisions relating to partnerships: Transfer of interest in a property investment partnership

by Mark Alexander

13:33 PM, 14th April 2017
About 4 years ago

HMRC Special provisions relating to partnerships: Transfer of interest in a property investment partnership

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HMRC Special provisions relating to partnerships: Transfer of interest in a property investment partnership

A partnership, consisting of individuals G and H (each with a 50% interest), owns the freeholds of many houses in multiple occupation, letting them as a commercial undertaking. None of the properties were introduced by the partners or persons connected to them. 

The partners spend a significant amount of time managing the tenants, collecting rents and undertaking repairs. The activity amounts to a business and the partnership is a property investment partnership.

G wishes to introduce his daughter J as a partner. He gives J half of his interest in the partnership, so J acquires a 25% interest in the profits.

This is a transfer of an interest in a property investment partnership. However, no consideration is given and none of the other provisions in Para 14(3B) apply to make this a Type A transfer. As a result, it is a Type B transfer: the property taken into account as relevant partnership property excludes any property the transfer of which did not fall to be taxed under Para10 when originally brought into the partnership.

Here, the property was all purchased from parties unconnected with the partners, so none of the property counts as relevant partnership property. There is, therefore, no charge to SDLT on this transfer.

The above comes from guidance notes on the HMRC website https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm34050

A family partnership could enable you to allocate profits disproportionately to ownership and to allocate drawings disproportionately to profits. For example, if your adult children or parents help you in your business and pay less than higher rate tax you could consider making them partners. This can result in significantly lower tax bills as well as being a useful IHT planning tool. Furthermore, it’s a step towards incorporation.

Incorporation can wash out all capital gains to date. Also, companies are not affected by restrictions on finance cost relief. However, beware CGT, Stamp Duty (LBTT in Scotland) and refinancing costs when considering the transfer of your properties to a company. Under the right circumstances, however, all of these are avoidable.

PRIVATE CONSULTATIONS

When you book a consultation I will write to you to advise you what information I need. On receipt of this information I will prepare a bespoke report for your consideration and arrange a 30 minute follow up call to answer any questions you may have.

Please note that I do not promote “schemes”. Any guidance offered will point you (and your accountant) directly to legislation which can be used to your advantage.

I look forward to hearing from you.

Yours sincerely

Mark Alexander – founder of Property118.com

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