Limited Liability Partnerships and SDLT

Limited Liability Partnerships and SDLT

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I am anxious to ensure that a SDLT exemption is secured on a transfer of a share of a property to a new LLP.

The individual concerned owns a property jointly with one of his business partners (in a professional partnership comprising 6 partners in all), but intends to buy his partner out and rent out the property via a LLP. It is intended that the LLP will be beneficially owned as to 99% by the individual and 1% by his wife.

The LLP is brand new and owns no other assets.

I understand that, one way or another, the purchase of the partner's share will incur SDLT, but are we safe from SDLT on the transfer of the other share to the LLP?

Many thanks in advance.

L
Lawrence McAulay

Replies (3)

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By Paul Soper
09th Jan 2007 12:14

Not quite
The disposal of the land by the first partnership will attract an SDLT liability as identified, but as presently structured so will the subsequent disposal by the individual to the LLP.

There is an exemption (s65 FA2003) which applies on the incorporation of an LLP to take over the business of an existing partnership so he and his wife would have to acquire the property from partnership No 1 as partners and then transfer the interest to the LLP. It would probably be much simpler if the LLP was used as the vehicle to acquire the property from the first partnership as there would then only be one transaction.

If there is any need need to use borrowed money to finance this venture care will also need to be taken as interest relief is not available on a loan used to inject capital directly or by way of loan into an investment LLP. The LLP itself can get interest relief however and should be structured as the borrower with the participants acting as guarantors for the amount of the loan.

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By Lawrence McAulay
09th Jan 2007 12:56

Would a transfer of the whole property work?
Thanks Paul.

I was afraid that a the LLP would have to pay SDLT on the whole value of the property if it bought it from partnership number 1. Would it only pay on the half that is being sold for consideration?

Thanks again

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By Paul Soper
09th Jan 2007 18:40

Hmmm
Yes re-reading there would be a problem if the acquisition from the partnership was made by the new LLP. I read this as being partnership property but reading it again it sounds as if the joint owners own it outside the partnership so only a half-share will transfer. Really the only route is acquisition of half share by husband to give entire share, ADLT will be due. Creation of partnership with wife - disposal of 1% share to create - using formal legal documentation, followed by transfer to LLP with same shares held. The problem is that SDLT is a transaction based tax rather than a document based tax as stamp duty was. Interests in partership could be varied without incurring an SD liability as no documentation would be required but would still create an SDLT liability as a transaction has occurred. All of this would have to be done within 12 months of the incorporation of the LLP.

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