SDLT – Two LLP scenarios

Scenario One

A Limited Liability Partnership owns a portfolio of UK properties which are let.  Two unconnected individuals are the members of the LLP.  A company (‘Co’) connected with one of the individuals has lent the LLP £500,000 at some time in the past.  Co will contribute this amount to the LLP by releasing the loan and become a member of the LLP.  Co will receive no share in the capital of the LLP but will be entitled to 80% of the net rental income from the property portfolio.

Q: What is the SDLT position when Co joins the LLP?  

The LLP is a property investment partnership (‘PIP’).  As it owns chargeable interests the transfer of an interest in the LLP to Co will be subject to SDLT.

The chargeable consideration will be 80% of the market value of every chargeable interest held as partnership property immediately after the transfer, excluding any market rent lease which satisfies the requirements in paragraph 15 of Schedule 15 FA 2003.

Scenario Two

An LLP holds interests in property and is a PIP.  The members of the LLP are two unconnected individuals (A and B) and a company (‘Co’) connected with A.  A introduces a chargeable interest into the LLP.

Q: Is there an exemption?

There is no exemption from SDLT.  There will be a charge under paragraph 10 Schedule 15 FA 2003 on a percentage of the market value of the interest transferred into the LLP by A equal to the percentage partnership shares of B and Co (in income) after the transfer.

An election can be made under paragraph 12A in which case the chargeable consideration for the transaction is the market value of the chargeable interest transferred but the property will not be treated as relevant partnership property for future Type B transfers of interests in the PIP.

At the time of publication this case study was technically accurate however, as tax law and practice change rapidly, you should take specific advice before taking any action.