Taxation Questions on Formation of Property PartnershipsMake Text Bigger
I am trying to establish the CGT and Stamp Duty position on the basis of two unrelated individuals forming an ordinary partnership (not an LLP).
To simplify matters to begin with, let us assume they both own six residential rental properties worth £200,000 each, and each of those properties has a mortgage of £100,000 secured against it. In other words, each individual is contributing £1,200,000 of property into the partnership and £600,000 of mortgage liability.
Now let us assume that each partner acquired his property portfolio for £600,000. In other words, each partners property portfolio is pregnant with capital gains of £600,000.
Let us also assume that each of the properties are HMO’s and that HMRC will accept that each of the landlords is running a business in accordance with the Ramsay Principles.
The reasons for the partnership formation are commercial, i.e. not tax motivated. For example, the properties in each of the portfolio’s are in two cities and it makes commercial sense for the partners to manage the properties closest to them. Each partner agrees to share all income, expenditure, risk, profit and loss pro-rata to the equity being invested into the partnership.
My initial questions are:-
- Does the legal and/or beneficial ownership of the properties need to be transferred into joint ownership in order for the partnership to be legitimate?
- Are capital gains crystallised by the formation of a partnership in this instance?
- Is Stamp Duty payable upon formation of the partnership?
If you could point me to legislation and/or HMRC manuals supporting any answers that would be very much appreciated.
Now to complicate this slightly.
If the mortgage liabilities of partner A were say £500,000 but the mortgage liabilities of partner B were say £700,000 (whilst everything else remains the same), would that change the answers to the three questions above? If so, in what way and why?
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