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SDLT relief?

Any SDLT relief or transfering a property to a company?

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Hi

Client owns a residential property jointly with another unconnected party, both submitted tax returns over the years for each of their share in rental profits but no partnership tax returns were submitted.

They want to transfer the property to a company owned solely by 1 of the individuals.

Are there any SDLT relief available for this type of transfer?

Any thoughts, greatly appreciated.

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18th Apr 2019 11:48

Highly unlikely that there is a partnership so partnership returns wouldn't be required.

Why would someone who jointly owns a property "want to transfer the property to a company owned solely by 1 of the individuals"? What's the commercial rationale for that?

No SDLT relief in my opinion.

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18th Apr 2019 13:08

Possibly there would be no SDLT if this is an outright gift (as the company is arguably unconnected to the donor(s) for the purposes of the s53 FA 2003 deemed MV rule ) although to the extent the equity being transferred is >£325k (or possibly £331k with 2 x £3k AE) there would be a 20% IHT entry charge as it cannot be a PET.

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to Justin Bryant
18th Apr 2019 14:26

What would the argument be for disapplying the connected persons rule?

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to Wilson Philips
18th Apr 2019 14:51

What would be the argument for applying it if one of the unconnected 50/50 property owners had no shares in it? (You could rely on a Pollen Estates argument here -in fact I think this very scheme was mentioned in that case.)

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to Justin Bryant
18th Apr 2019 15:09

Assuming the property is owned 50%:50% by X and Y, and Y will 100% own the company, then I agree that there is no SDLT on X's 50% (if there is no actual consideration) but Y's 50% interest seems to me to fall within s 53.

On the IHT point, there is a PET to the extent that Y's estate is augmented, and there is only a C.L.T. to the extent that value leave's X's and Y's estate, but doesn't arrive in Y's estate.

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to Vile Nortin Naipaan
18th Apr 2019 16:11

You obviously are also not aware of the Pollen Estates SDLT trick (that can cover various areas such as SDLT group relief. I think Tax Journal mentioned all this a few years ago if you Google it).

Indeed, HMRC late last year I think blocked a big loophole involving that trick re the 3% SDLT surcharge.

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to Justin Bryant
18th Apr 2019 15:08

I detest the habit of answering a question with a question. However, Pollen Estates - if I recall correctly - concerned joint purchasers, in the context of a particular relief, and not joint vendors.

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to Wilson Philips
18th Apr 2019 16:16

You need to read the case and also have a basic understanding of SDLT (and property law) to understand what I mean there.

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to Justin Bryant
18th Apr 2019 16:26

Why can’t you simply explain exactly why the transaction might free of SDLT? I do have a basic understanding of the tax but confess to being a tax adviser and not a property law specialist.

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to Wilson Philips
18th Apr 2019 20:49

Wilson Philips wrote:

I detest the habit of answering a question with a question.

Do you?

:)

It's usually the only sensible thing to do given the likely lack of key facts.

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to Justin Bryant
18th Apr 2019 16:47

More to the point, why on earth would they gift it?

It will become very expensive when it comes to de-enveloping the property if they did, all to save a few thousand in SDLT.

I think the SDLT blinkers are on.

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18th Apr 2019 14:53

I think it would be useful if the OP could give more background to, and details of, the proposal. It clearly looks odd on the information given.

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By jcace
18th Apr 2019 15:46

Perhaps the OP can provide some additional information:
A and B (unconnected parties) jointly own a residential property - 50:50?
They wish to transfer the property to a limited company owned solely by A.
What will A get out of this transaction?
What will B get out of this transaction?

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