SDLTM34365 - Application of exemptions and reliefs: Group Relief
(This page was introduced on 18 February 2022)
For this example there is a transfer of a chargeable interest to an English Partnership (EP) and focuses on the application of para 27A (see SDLTM34490).
We are looking at a transfer to a partnership so the provisions of para 2 will apply we therefore need to establish any SDLT liability using para10, 12 and 27A - see SDLTM33550.
The EP has four partners: A Ltd, B Ltd, C Ltd and D Ltd. Their partnership interests are 45%, 35%, 15% and 5% respectively.
- A Ltd and B Ltd are connected and in the same group for SDLT purposes.
- C Ltd is owned by Mr X, who separately owns the group which A Ltd and B Ltd are in
- D Ltd is an unconnected company
A Ltd has transferred a warehouse it owned to the partnership. The warehouse is worth £1,000,000.
Step One
Identify the relevant owner or owners.
A Ltd is a relevant owner because, immediately before the transaction, it is entitled to a proportion of the chargeable interest and immediately after the transaction it was a partner.
Step Two
For each relevant owner, identify the corresponding partner or partners.
A Ltd is its own corresponding partner because, immediately after the transaction it was a partner and it was the relevant owner.
As B Ltd is connected to A Ltd, the relevant owner, and they are a part of the same group, para 27A will apply.
Therefore, B Ltd is treated as also being a corresponding partner as immediately after the transaction it was a partner and it is connected to the relevant owner.
Para 27A does not apply to C Ltd, even though Mr X owns both C Ltd and the group which A Ltd and B Ltd are part of. This is because C Ltd is not in the same group as A Ltd. For guidance on when companies are grouped, see SDLTM23014.
Step Three
A Ltd is entitled to 100% of the chargeable interest immediately before the transaction.
There are two corresponding partners so this proportion can be apportioned between A Ltd and B Ltd, this can be carried out to give the most beneficial result.
For this example, we will apportion 50:50 as this will give the most benefit.
Step Four
The lower proportion for each person who is a corresponding partner is the proportion of the chargeable interest attributable to the partner, or if lower, the partnership share attributable to the partner. We need to compare the two to establish the lower proportion to use.
The proportion of the chargeable interest attributable to the partner from Step Three:
- 50 for A Ltd
- 50 for B Ltd
The partnership share attributable to the partner is:
- 45 for A Ltd
- 35 for B Ltd
As the partnership share attributable to each partner is less than 50, for each partner we will have to use their partnership share.
Step Five
We add the lower proportions together, 45 + 35.
As a result, the sum of the lower proportions in this instance is 80.
The chargeable consideration for the transactions shall be taken to be 20% of the market value of the chargeable interest i.e. £200,000.
Application of Paragraph 27A and Group Relief
Had para 27A not applied, B Ltd would not have been treated as a corresponding partner and the SLP would have been 45, which is the partnership share attributable to A Ltd. The chargeable consideration for the transaction would then have been 55% of the market value of the chargeable interest i.e. £550,000.
However, as a result of para 27A, the charge in respect of the transfer to the EP is reduced to the amount that would have been payable had the connected company, which is B Ltd, been a corresponding partner of A Ltd (as calculated above).
By using the provisions of para 27A, the SLP in this instance is 80 with the charge reduced by 35% due to B Ltd being regarded as a corresponding partner. (55% reduced to 20% of the market value of the warehouse).
Para 27A is a form of group relief and so the partnership will need to make a claim for group relief in a land transaction return in respect of the reduction in charge (i.e. 35% in the above example). Furthermore, the claim will be subject to the usual group relief conditions (Sch7/para2), subject to some modifications (para27A(3)).