SDLT: partnership dissolution

I am dealing with the dissolution of a family farming partnership of three brothers where one (the continuing farmer) will receive the farmland belonging to the partnership in satisfaction of his partnership capital account. I am aware that, as all the parties are connected, a transfer from a continuing partnership would not result in a stamp duty land tax charge. However, is the position any different if the transfer is in connection with dissolving the partnership?

Paragraph 18(7) Schedule 15 FA 2003, appears to suggest that it is not. Will any delay in transferring the land mean that it is not treated as made out of a partnership (that no longer exists), i.e. a transfer by individuals for consideration?

Also, what happens if the assets cannot be distributed straight away and the land is rented to the farming brother in the interim (i.e. the land continues to be owned by all three until matters are finally brought to a conclusion)?

Query 17,516 – Farm Hand

Answer:

Paragraphs 18 to 24 Schedule 15 FA 2003 apply where a chargeable interest is transferred from a partnership to a person who is or has been one of the partners for his personal benefit. There is a transfer of a chargeable interest from a partnership where a chargeable interest that was partnership property ceases to be partnership property (paragraph 37 Schedule 15). Partnership property is an interest or right in property held by or on behalf of the partnership or the members of the partnership for the purposes of the partnership business (paragraph 34(1) Schedule 15). It is expressly provided in paragraph 18(7) Schedule 15 that property which was partnership property before dissolution or other cessation of a partnership is treated as remaining as partnership property until it is distributed so it makes no difference if the distribution does not take place immediately the partnership is dissolved.

As the partners are connected by reason of being siblings, Farm Hand is correct that no charge to SDLT will arise in this case. In any event, where the chargeable interest in question was transferred to the partnership on or after 20th October 2003 but the transfer was stamped or SDLT was paid, even in a case where the partners are not connected, a charge to SDLT would arise only on the proportion of the market value of the property interest transferred on which tax has not previously been paid. This proportion is calculated by a statutory formula (set out in paragraphs 21 and 22 Schedule 15) which takes account of increases or decreases in partnership shares since the property was transferred to partnership.

Marilyn Merlot (Ann Humphrey)

First published in Taxation magazine Readers’ Forum www.taxation.co.uk