LBTT7001 General provisions

Transactions involving a partnership are subject to certain rules, including the definition of a partnership, continuity of a partnership and the adaptation of the calculation of chargeable consideration. These rules apply to a transfer:

  • to a partnership
  • from a partnership
  • between partnerships.

Definition of a partnership

A partnership for the purposes of LBTT is taken as the following:

Tax transparent

Scottish partnerships have legal personality. However, for the purposes of LBTT, a chargeable interest held by a partnership is treated as if it is held by or on behalf of the partners and any land transaction entered into for the purposes of a partnership is treated as if it is entered into by or on behalf of the partners and not by the partnership. All partnerships are treated for the purposes of LBTT in this manner regardless of their country of origin and governance.

Partnerships transactions are covered by schedule 17 to the LBTT(S)A 2013.

The legislation

This is a list of the legislation covering Partnerships, click on our legislation links or visit legislation.gov.uk for more information.

 

Chargeable interests

There may be a LBTT liability when a partnership deals with the following chargeable interests:

  • when a partnership acquires a chargeable interest and enters into the land transaction as the buyer
  • when a chargeable interest is transferred to a partnership by a partner, a person who will become a partner or a person connected to either the partner or person who will become a partner
  • when a chargeable interest is transferred from a partnership to a person who is or was a partner, or is connected with such a person
  • when a chargeable interest is transferred from a partnership to another partnership

Acquiring an interest in a partnership that holds chargeable interests as a partner does not in itself constitute a land transaction unless any of the following provisions within the LBTT(S)A 2013 apply:

  • transfer of chargeable interest to a partnership
  • transfer of a partnership interest pursuant to earlier arrangements
  • transfer of interest in a property investment partnership 

 

Continuity of partnership

Where there is a change in membership, LBTT treats a partnership as the same partnership if any one person who was a member before the change remains a member after the change.

This does not change the need to have more than one partner for a partnership to exist. 

Example

ABC Partnership with 3 partners A, B and C.

Partners B and C leave, the partnership then ceases to exist.

If at a later date D joins with A as a partner, this is a new partnership.

If D joined the partnership at the same time as B and C left, the partnership would continue. There would be a need for D to have the same partnership agreement that B and C had but not the same share of profits.[RM1] [MJ2] [RM3] 

The partnership meets the need to have more than one partner. The need to have at least one partner who was a partner before and after the change is also met.

 

Partnership not to be regarded as a unit trust scheme etc.

For the purposes of LBTT, a partnership is not to be treated as a unit trust scheme (collective investment vehicles used to hold assets, including land, on behalf of unit holding investors) or an open-ended investment company (a collective investment scheme, with property and investment conditions).

For further guidance see:

LBTT(S)A 2013 schedule 17 paragraph 2

LBTT(S)A 2013 schedule 17 paragraph 3

LBTT(S)A 2013 schedule 17 paragraph 4

LBTT(S)A 2013 schedule 17 paragraph 5

LBTT(S)A 2013 schedule 17 paragraph 6

LBTT5005 Unit Trust schemes

LBTT3047 Open ended Investment Companies (OEICs) Relief

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:

Section 70 of the Abolition of Feudal Tenure etc. (Scotland) Act 2000 

LBTT(S)A 2013 schedule 17 paragraph 43

 

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:

LBTT(S)A 2013 schedule 17 paragraph 44

 

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:

LBTT(S)A 2013 schedule 17 paragraph 45

 

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:

LBTT(S)A 2013 schedule 17 paragraph 46

LBTT(S)A 2013 schedule 17 paragraph 47

 

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:

LBTT(S)A 2013 schedule 17 paragraph 48

 

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 connecting 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 transfer or. This is calculated as a percentage figure.

Example

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:

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