LBTT7007 Ordinary partnership transactions

LBTT7007 Ordinary partnership transactions

The following rules apply to land transactions entered into as buyer or on behalf of the members of a partnership other than transactions which fall within:

  • Part 4 - transfers of chargeable interest to a partnership (LBTT7002 Transfer of chargeable interest to a partnership)
  • Part 5 - transfers out of a partnership (LBTT7003 Transfer out of a partnership)
  • Part 6 - transfers involving leases (LBTT7005 Transfer involving leases)
  • Part 7 – transfers involving the transfer of an interest in a PIP (LBTT7006 Property investment partnerships (PIP))

Responsibility of partners

Anything required or authorised to be done by or in relation to the buyer in the transaction is required or authorised to be done by or in relation to all the responsible partners. 

Responsible partners in relation to a transaction are partners in the partnership at the effective date of the land transaction including any partner who joins the partnership after the effective date.

For further guidance see:

Representative partners

Anything required or authorised to be done by or in relation to the responsible partners may instead be done by or in relation to any representative partner or partners. This includes making the declaration that an LBTT return is complete and correct.

A representative partner is nominated by a majority of the partners to act as the partnership representative for the purposes of LBTT. 

Any notice of this or change will not take effect until notified to Revenue Scotland in writing which can be sent via email to LBTT@revenue.scot.

For further guidance see:

Joint and several liability of responsible partners

Irrespective of any nomination of representative partners, all the responsible partners have joint and several liability for the payment of LBTT. 

This does not extend to partners who did not become partners until after the effective date of the relevant land transaction.

For further guidance see:

Interpretation

For the purposes of LBTT the following sections provide commonly used definitions and terms regarding partnership transactions.

Partnership property

Any reference to partnership property is to an interest or right held by or on behalf of a partnership, or the members of a partnership, for the purposes of the partnership business.

This reflects the practice in Scotland that title to partnership property is not held in the name of the partnership itself. 

Scottish partnerships can hold title in their own name but more commonly, title is held in the name of a trust for the partnership, or in the name of one of the partners.

For further guidance see:

Partnership share

Any reference to a person's partnership share at any time is to the proportion in which the person is entitled at that time to share in the income profits of the partnership.

For further guidance see:

Transfer of chargeable interest

References to the transfer of a chargeable interest include—

  • the creation of a chargeable interest,
  • the renunciation or release of a chargeable interest, and
  • the variation of a chargeable interest.

For further guidance see:

Transfer of chargeable interest to and from a partnership

There is a transfer of a chargeable interest to a partnership in any case where a chargeable interest becomes partnership property.

There is a transfer of a chargeable interest from a partnership in any case where:

  • a chargeable interest that was partnership property ceases to be partnership property, or

a chargeable interest is created out of partnership property and the interest is not partnership property.

When calculating the Sum of Lower Proportions, the chargeable interest must be for the purposes of the partnership business.

For further guidance see:

Transfer of interest in a partnership

A transfer of interest occurs from the other partners to that partner: 

  • when a person acquires a partnership share, or
  • a person’s partnership share increases.

For further guidance see:

Connected parties

Connected persons has the same meaning as it has for section 1122 of the Corporation Tax Act 2010, with the omission of partners being connected with one another just because of their partnership. In other words, there must be something else connected them, for them to be connected under the partnership rules.

Subsection (6)(c) to (e) are omitted when:

  • calculating the sum of the lower proportions for transactions involving transfers of a chargeable interest from a partnership and
  • on the transfer of chargeable interests into a partnership by:
    • a partner
    • someone becoming a partner
    • someone connected with a partner or someone becoming a partner

This means any person, in their capacity as trustee of a settlement, is not connected with

(c)any close company whose participators include the trustees of the settlement,

(d)any non-UK resident company which, if it were UK resident, would be a close company whose participators include the trustees of the settlement,

(e)any body corporate controlled (within the meaning of section 1124) by a company within paragraph (c) or (d),

for the purposes of those sections.

LBTT5009 - Connected Persons | Revenue Scotland

 

Section 22

Where a transaction falls within both Section 22 and Part 4 or 5 of Schedule 17, Schedule 17 takes priority to determine the chargeable consideration. You therefore do not use the deemed market value rules and instead use the modified partnership rules to arrive at the chargeable consideration.

The deemed market value in such cases will be the outcome of:

MV x (100 – SLP)%

The sum of lower proportions is the share of the interest treated as staying with the transferor. This is calculated as a percentage figure.

Example
  • A partnership owns a property which it wishes to transfer to a limited company, D.
  • The partnership consists of three partners (individuals A, B and C) whose share of profits in the partnership are 40%, 30% and 30%, respectively.
  • The partners are unconnected for the purposes of Schedule 17, other than B and C, who are married.
  • B owns and controls the limited company, D. C therefore also controls D as their spouse’s rights are attributed to them in determining control.
  • The property has a market value of £500,000.
  • When the property is transferred to D, D pays only £300,000.
  • The sellers in the transaction are deemed to be the three individual partners, per Para 3, Sch 17.
  • Section 1122 of the Corporation Tax Act 2010 (connected persons) has effect for the purposes of Sections 22 and 23. Therefore, each partner is connected with the company.
  • As a result, the transfer to the company is deemed to be not less than market value, by Section 22. In this case, the chargeable consideration would be the full market value of £500,000.
  • However, the transaction also falls to be taxed under Part 5, Sch17 as the transfer is from a partnership to a person who is or has been one of the partners, or from a partnership to a person connected with a person who is or has been one of the partners.
  • The sum of the lower proportions is calculated in accordance with Para 22 of Sch 17 and is 60. The calculation of chargeable consideration under Para 21 is therefore MV x (100-60)% = £200,000.
  • Where the provisions of both Section 22 and Part 5 of Sch 17 apply to a transfer of a chargeable interest from a partnership to a company, the provisions of Part 5 will take precedence to determine the chargeable consideration.

As a result, even though the Section 22 charge would be £500,000, what is actually chargeable is the proportion determined by Para 21 of Sch 17, which is £200,000.

For further guidance see:

Arrangements

‘Arrangements’ include any scheme, agreement or understanding, whether or not legally enforceable.

For further guidance see:

LBTT7002 Transfer of chargeable interest to a partnership, Transfer of a partnership interest following arrangements that were in place at the time of a land transfer.

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