SDLT

1
SDLT Current Problem Areas in Commercial
propertyLondon10 March 2005

• Patrick Cannon, 24 Old Buildings
• patrick_at_patrickcannon.net

2
Special Situations

• Partnerships and land
• Unit trusts unwinding issues
• Lease anti-avoidance
• Disclosure Langham v Veltema in SDLT

3

• Property Owning Partnerships The New Rules
• Transparency principle
• Contrast with Stamp Duty
• Contrast with Capital Gains Tax
• SDLT chargeable on
• - The transfer of land into a partnership by a
  partner.
• - The acquisition of an interest in a
  partnership.
• - The transfer of land out of a partnership to a
  partner.

4

• Contribution to a Partnership
• Before the transfer

A
B
50
50
Partnership
Prop 1 Value 1m
Prop 2 Value 1m
5

• Contribution to a Partnership
• C joins the partnership. C transfers Property 3
  worth 1m to the partnership as a partnership
  contribution and becomes entitled to 33.4 of the
  partnership profits

A
B
C
33.3
33.3
33.4
Partnership
Prop 1 1m
Prop 2 1m
Prop 3 1m
SDLT is charged on 1M x 66.6, being the total
of the other partners' shares after the transfer
6
The Partnership Formula

• (RCP x MV) (RCP x AC)
• Where
• RCP relevant chargeable proportion
• MV market value
• AC actual consideration

7
The RCP

• In the RCP x MV calculation, RCP (100 SLP)
• In the RCP x AC calculation, RCP SLP
• SLP sum of the lower proportions
• the aggregate of the partnership interest,
  after the transfer, of the transferor and any
  partner who is connected with the transferor.

8
Connected Parties and Actual Consideration

• In a simple case involving no connected parties
  eg slide 5, SLP would be 33.4, the partnership
  share acquired by C.
• If B was Cs spouse, SLP is 66.7 so the SDLT
  charge is on 33.3 of market value.
• If the property is worth 2m and C receives 1m
  from the partnership in addition to the
  partnership share (and still assume that B is Cs
  spouse) the computation is
• (33.3 x 2m) (66.7 x 1m)
• 666,000 667,000 1,333,000 x 4 53,320

9
Transfer of Partnership Interest

• Where a partnership owns an interest in UK land
  and
• An existing partner transfers all or part of
  their partnership interest to a new or existing
  partner for money or money's worth, or
• A person becomes a partner and an existing
  partner reduces their partnership share (or
  retires from the partnership) and withdraws money
  or money's worth from the partnership.

10

• Transfer of partnership interest
• Before the transfer

A
B
50
50
Partnership
Prop 1 Value 2m
Prop2 Value 1m
Non-property asset value 1m
11

• Transfer of partnership interest
• C buys B's 50 share in the partnership for 2m

Sale
A
B
C
2m
50
50
Partnership
Prop 1 Value 2m
Prop 2 Value 1m
Non-property asset value 1m
SDLT is charged on 1.5m, being 50 x 3m. 3m
is the market value of the real property. The
charge would be on the 1.5m market value of C's
acquired share in the properties even if C did
not pay market value to B, provided some
consideration is given in money or money's worth.
12

• Transfer of land out of a partnership
• Before the transfer

A
B
C
33.3
33.3
33.4
Partnership
Prop 1 Value 5m
Prop 2 Value 3m
Prop 3 Value 2m
13

• Transfer of land out of a partnership
• C retires and Property 3 is transferred to him.
  Property 3 is worth 2m, 20 of the value of the
  partnership real property.

C
A
B
33.3 16.7 50.0
33.3 16.7 50.0
33.4 33.4- 0_
Transfer of Property 3
Partnership
Prop 1
Prop 2
SDLT on RCP which is 100 33.4 66.7 of M.V.
Note 33.4 deducted only if Property 3 was
acquired pre 20 October 2003 or stamp duty or
SDLT was paid on partnership's acquisition of
Property 3.
14
What Transfers are Taxed?

• No consideration No SDLT
• Partnership debt as consideration?
• Where there is an actual transfer of an interest
  in a partnership actual consideration
• Where there is an incoming and a retiring or
  reducing partner withdrawal of money
• Avoid withdrawal dilution/high debt solution
• No arrangement - retirement/withdrawal ok

15
The Para 14 Problem

• Purchaser is the person acquiring an increased
  partnership share
• Partnership share income sharing proportion
• So is a mere change in profit shares a taxable
  transfer?
• Transfer of an interest in a partnership is
  required
• Revenues view of consideration

16
Partnership v Unit Trust

• Unit trust - a company (except for
• connected company mv
  
• charge) units are
  shares
• - no look through
• - exemption for seeding
• Partnership - not a unit trust
• - look through
• - no seeding exemption
• Contribution of partnership to unit trust?

17
Unit Trust Unwinding

• Vendor Purchaser

Sale of units
Units
Unit Trustees Jersey
Distribution of Property
Property
18
Unit Trust Unwinding

• Is there a market value charge where unit holder
  is a company?
• S 53 FA 2003
• S 101(7) FA 2003 not a company
• S 839 ICTA 1988 ut is a company
• If ut is a company then it is connected but s
  54 FA 2003 case 3 exemption for company
  distributions applies

19
Unit Trust Unwinding

• Capital Allowances
• Not s 198(2) CAA 2001
• Connected for s 839 ICTA
• S 266/267 CAA 2001 deemed sale on succession
  for no balancing allowance/balancing charge
• Watch earlier s 198(2) election on original
  contribution

20
Leases FA 2004 Changes

• Any variation other than to a lease
  acquisition of a chargeable interest
• Variation of a lease acquisition only where
• (a) Variation takes effect as grant of new lease
  
• Variation reduces rent acquisition by lessee
  or
• Variation reduces term acquisition by lessor.
• Variations involving break clauses etc ? Para
  2(b) Sch 17A FA 2003

21
Leases to Nominees

• Grant of lease to nominee disregarded for SDLT
• First non-exempt assignment deemed grant of a
  lease by assignor on same terms as assignee holds
  lease
• Aimed at taxing rent what about premium?
• Effect of deeming provisions in tax?
• Marshall v Kerr, R v Dimsey

22
Disclosure in SDLT

• Langham v Veltema 2004 EWCA Civ 193
• Inland Revenue Guidance 23/12/04
• SDLT implications ?