My VIP Tax Team question of the week: SDLT on property transfer to a company via an LLP

I have a client who owns a property outside of their limited company. They want to transfer their property to their Limited company and think they can place it in an LLP as a way of transferring it. They are wanting to do this mainly to claim relief for SDLT/CGT. Is this valid or are there other alternatives they have?

A transfer from an individual into an LLP for no consideration would give rise to a capital gain at market value as per s.17 TCGA92, this is because the partner is treated as disposing of their fractional interest in the property to the other partners on inserting the property into the partnership. This is on the assumption that it is not the individual’s main residence, meaning PPR relief under s.222 TCGA92 would not be available. There is no mention of the use of said property so I will assume there is no availability of any other capital gains relief such as gift holdover, rollover, or BADR.

If the LLP then transfers the property to the Ltd co, and the property has increased in value, CGT may become payable as each partner would be treated as disposing of their fractional interest in the property to the company, s.59A TCGA92. Incorporation relief under s.162 TCGA92 might be applicable if the conditions had been satisfied, a summary of these conditions and other factors to consider for incorporation relief can be found at CG65700c. The main concern would be that the LLP partners would need to show that the activity constituted a business, following the Ramsay case this has become the most considered point when incorporating a business, particularly a letting business.

There would also be stamp duty land tax to consider assuming the property is in England. Normally the charge is based on the consideration involved however Sch 15 FA03 paragraph 10 contains the calculation when transferring a chargeable interest to a partnership/LLP by a partner, this rule is summarised in SDLTM33510. Effectively, the legislation bases the consideration for the transaction by the expression MV X (100-SLP)%, where MV is the market value of the interest transferred and SLP is the sum of lower proportions. The aim of this is to restrict the market-value charge to the chargeable interest transferred to a partnership in which the owner is or becomes a partner. Five steps are required to determine the SLP which can be found here: or at SDLTM33560 and SDLTM33570.

Similar rules for SDLT would apply when the property is then transferred from the LLP to the limited company under paragraphs 18 & 20 of schedule 15 FA03.

However, the SDLT rules under Schedule 15 FA03 only apply if the LLP is deemed to be an actual partnership. HMRC define a partnership in their manual SDLTM33110, which includes a limited liability partnership formed under the limited liability partnership act 2000, in each case, a partnership will exist if and only if the entity carries on a business. If the transfer to the LLP is not for a commercial purpose and is only looking to avoid SDLT by side-stepping the market value rule within s.53 FA03, which normally applies when an individual transfers a property to a limited company, then HMRC could consider the anti-avoidance legislation at s.75A FA03 meaning they would disregard the transfer to the LLP ignoring the rules contained within Sch 15 FA03 to calculate the consideration and base the transfer purely on the market value for SDLT consideration purposes. So, ultimately it would depend on the reason for the transfer to the LLP first before then transferring it to the company.

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Apprentice Tax Advisor
0844 892 2470

Stuart started working for CTW in 2016 as a tax administrator on the overflow lines. He then moved into Finance in May 17 where he completed his AAT L2. He is now a member of the Tax team, currently studying for his ATT qualification and working towards being a valued member of the team.

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