LBTT7012 - Partnerships: exemptions, reliefs and notification
No exemption where there is no chargeable consideration
The exemption from tax where there is no chargeable consideration does not apply to:
- transactions involving the transfer of a chargeable interest to a partnership - see LBTT7005;
- transactions involving the transfer of a chargeable interest from a partnership – see LBTT7008;
- transfers of a partnership interest pursuant to arrangements that were in place at the time of a land transfer – see LBTT7006; or
- a transfer of an interest in a property investment partnership – see LBTT7011.
There are certain rules (below) in relation to the application of group relief (see LBTT3025) and charities relief (see LBTT3035) to transactions involving partnerships, but otherwise, any other provision affording exemption or relief from LBTT applies.
LBTT(S)A 2013 schedule 17 paragraph 37
Application of group relief
Group relief (see LBTT3025) is available in transactions involving partnerships where the conditions for it are met.
The primary requirement of group relief is whether the companies concerned are within a group structure and this depends upon the status of the companies involved: they must be bodies corporate and, to establish a group structure, they must have issued share capital.
The status of a partnership for group relief purposes depends on the nature of that partnership.
Scottish Partnerships and Scottish Limited Partnerships are not bodies corporate and therefore cannot be members of an LBTT group. They do have legal personality and can own shares in a subsidiary. This means a Scottish Partnership causes a break in the group structure.
Limited Liability Partnerships (wherever registered in the UK) are also bodies corporate – see the Limited Liability Partnership Act 2000.
English Partnerships and English Limited Partnerships have no legal personality.
Whilst the status of the partnership is relevant for group relief, it is not for partnership rules, as liability to LBTT is that of the partners, not the partnership.
Where there is a transfer of a chargeable interest to or from a partnership, LBTT(S)A 2013 ‘looks through the partnership’ to the partners.
When looking at transfers to or from group companies where there is a partnership in the group structure the type of partnership determines whether the provisions of group relief can apply.
The provisions in relation to withdrawal of group relief (see LBTT3026) are modified for the purposes of partnerships transactions.
Group relief is withdrawn where a partner who was a partner at the effective date of the transaction which is exempt from charge by virtue of this schedule (‘the relevant partner’ and ‘the relevant transaction’ respectively) ceases to be a member of the same group as the seller before the end of the period of three years beginning with the effective date of the transaction, or in pursuance of, or in connection with, arrangements made before the end of that period. References to the ‘buyer’ in the rules for group relief are to be read as references to the relevant partner.
Where group relief is partially withdrawn, the amount of tax chargeable is an appropriate proportion having regard to the subject matter of the relevant transaction and what is held at the relevant time by or on behalf of the partnership and to the proportion in which the relevant partner is entitled at the relevant time to share in the income profits of the partnership.
LBTT(S)A 2013 schedule 17 paragraphs 38-39
Where, in calculating the sum of the lower proportions for a transaction involving the transfer of a chargeable interest to a partnership, and a company (‘the connected company’) would have been a corresponding partner of a relevant owner (‘the original owner’) but for the fact that the definition of corresponding partners includes connected persons only if they are individuals, and the connected company and the original owner are members of the same group, then the charge in respect of the transaction is to be reduced to the amount that would have been payable had the connected company been a corresponding partner of the original owner for the purposes of calculating the sum of the lower proportions.
The rules for withdrawal and partial withdrawal of group relief apply in the same way to the partner and the transferor who was a member of the same group at the time of the transaction. Again, references to the ‘buyer’ in the rules for group relief are to be read as references to the relevant partner.
LBTT(S)A 2013 schedule 17 paragraph 39
Application of charities relief
Where the conditions for charities relief (see LBTT3035) are met the relief applies to all partnership transactions. However, this is modified where the transaction is a transfer of an interest in a property investment partnership or a transfer of a partnership interest pursuant to earlier arrangements.
Charities relief is available in these circumstances if the transferee is a charity and every chargeable interest held as partnership property immediately after the transfer must be held for qualifying charitable purposes.
LBTT(S)A 2013 schedule 17 paragraph 40
Worked examples
Pink, Purple and Yellow are each 33.33% partners in a property investment partnership. Red (a body or trust established for charitable purposes only) wishes to become a partner.
Red can claim LBTT charities relief against any liability to LBTT if all the land held by the partnership following Red’s admission is held for qualifying purposes.
If, within three years of this transfer, any chargeable interest held by the partnership as partnership property ceases to be held for qualifying purposes, the relief will be withdrawn. LBTT will then become payable on the proportion of the market value that would have been chargeable at the time that charities relief was claimed.
Notification of transfers of partnerships interests
Where there is no chargeable consideration by virtue of the sum of lower proportions, Section 30 is not met and no return is required. If you are in doubt, please contact Revenue Scotland.
A transaction which is a chargeable transaction because it is either:
- a transfer of an interest in a property-investment partnership and the relevant partnership property includes a chargeable interest; or
- a transfer of a partnership interest pursuant to arrangements that were in place at the time of a land transfer,
is a notifiable transaction if (but only if) the consideration for the transaction exceeds the nil rate band.
The consideration for a transaction exceeds the nil rate band if either of the following conditions are met:
- the chargeable consideration; or
- where the transaction is one of a number of linked transactions, the total chargeable consideration for all the linked transactions,
exceeds the nil rate band applicable to the transaction.
Ref ID
LBTT7012
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