LBTT7002 Transfer of chargeable interest to a partnership

The transfer of a chargeable interest to a partnership under Part 4.

Certain rules apply when a chargeable interest is transferred to a partnership by:

  • a partner
  • a person in return for an interest in the partnership i.e. who will become a partner; or
  • a person connected to a partner or person who becomes a partner as a result or in connection with the transfer

A property-investment partnership may elect to disapply these rules. See more at LBTT7006 Property investment partnerships (PIP), Election by a PIP to disapply part 4 rules.

The rules apply whether the transfer is in connection with the formation of a new partnership or a transfer to an existing partnership. 

For further guidance see:

 

Adaptation of chargeable consideration

Where the above applies, the chargeable consideration for the transfer of the chargeable interest is reduced.

The reduction is the sum of the lower proportions held in the chargeable interest before and after the transfer.

The formula is:

MV x (100 – SLP)%

Where MV is the market value and SLP is the Sum of Lower Proportions.

Note, the formula is the same for both transfers to and from a partnership.

The rules at LBTT700 Ordinary partnership transactions, regarding the responsibility of partners, representative partners and joint and several liability of responsible partners apply. The responsible partners are those who were partners immediately before the transfer and who remain partners after and any person becoming a partner as a result of, or in connection with, the transfer.

If whole or part of the chargeable consideration for the land transfer is rent, this section does not apply. Instead, you would need to apply the rules at, LBTT7005 Transfer involving leases.

For further guidance see:

 

Calculating the sum of lower proportions (SLP)

The sum of the lower proportions in relation to the land transfer is determined as follows:

  1. Identify the relevant owner or owners.
  2. For each relevant owner, identify the corresponding partner or partners. If there is no relevant owner with a corresponding partner, the sum of the lower proportions is nil.
  3. For each relevant owner, find the proportion of the chargeable interest to which the owner was entitled immediately before the land transfer. Apportion that proportion between any one or more of the relevant owner's corresponding partners.
  4. Find the lower of the following proportions (“the lower proportion”) for each corresponding partner—
    1. the sum of the proportions (if any) of the chargeable interest apportioned to the partner (at Step 3) in respect of each relevant owner,
      1. the partner's partnership share immediately after the land transfer.
  5. Add together the lower proportions for each corresponding partner. The result is the sum of the lower proportions.

 

Relevant owners

Step 1: identify the relevant owner(s).

A person is a relevant owner if—

  1. immediately before the land transfer, the person was entitled to a proportion of the chargeable interest, and
  2. immediately after the land transfer, the person is a partner or connected with a partner.

Persons who are entitled to a chargeable interest as joint owners are to be taken to be entitled to the chargeable interest as common owners in equal shares.

Example: transfer to a partnership – relevant owners

A plot of land is owned by Blue and Yellow (civil partners). 

Blue has a 50% share and Yellow has a 50% share. 

The land is transferred to a partnership of four partners, Blue is one of the four partners (so Part 4 is engaged) and has a share of 40% in the partnership. The remaining three partners have equal shares of 20%.

Blue is the relevant owner as they are entitled to a proportion of the chargeable interest before the land transfer (they have 50% ownership of the interest) and will still be a partner after the transfer.

Even though Yellow is not a member of the partnership, Yellow is a relevant owner as they had 50% ownership of the interest before the transfer and is a connected person in relation to Blue who is a partner in the partnership.

 

Corresponding partners

Step 2: For each relevant owner, identify the corresponding partner or partners. If there is no relevant owner with a corresponding partner, the sum of the lower proportions is nil.

A person is a corresponding partner in relation to a relevant owner if, immediately after the land transfer—

(a)the person is a partner, and

(b)the person is the relevant owner or is an individual connected with the relevant owner.

For these purposes, a company is to be treated as an individual connected with the relevant owner in so far as it—

(a)holds property as trustee, and

(b)is connected with the relevant owner only because of section 1122(6) of the Corporation Tax Act 2010.

 

Section 1122(6) CTA10

A person, in the capacity as trustee of a settlement, is connected with—

(a)any individual who is a settlor in relation to the settlement,

(b)any person connected with such an individual,

(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),

(f)if the settlement is the principal settlement in relation to one or more sub-fund settlements, a person in the capacity as trustee of such a sub-fund settlement, and

(g)if the settlement is a sub-fund settlement in relation to a principal settlement, a person in the capacity as trustee of any other sub-fund settlements in relation to the principal settlement.

 

Example: transfer to a partnership – corresponding partners

The relevant owners are Blue and Yellow (civil partners). Each need to be looked at in turn. The partnership partners are Blue, Purple, Green and Red. 

Firstly, Blue is a corresponding partner to Blue as a relevant owner. The other three partners are only connected with Blue by virtue of their partnership, which is excluded. They are not connected with Blue in any other way. 

Secondly, Yellow has one corresponding partner: Blue. Blue is a partner and a relevant owner.

Yellow is not a partner and so cannot be a corresponding partner. 

The only corresponding partner is therefore Blue.

It is possible that there is no relevant owner with a corresponding partner. For example, if a person leaves the partnership when the transfer occurs. If this is the case, the sum of lower proportions is nil. The chargeable consideration would then be on the full market value of the chargeable interest with no discount. The transfer or has not retained their interest in the chargeable interest.

For each relevant owner, find the proportion of the chargeable interest to which the owner was entitled immediately before the land transfer. Apportion that proportion between any one or more of the relevant owner's corresponding partners.

 

Proportion of the chargeable interest

Step 3: For each relevant owner, find the proportion of the chargeable interest to which the owner was entitled immediately before the land transfer. Apportion that proportion between any one or more of the relevant owner's corresponding partners.

You must therefore determine the share proportions of the chargeable interest before the transfer for each relevant owner. 

Each relevant owner’s proportion is then apportioned to their corresponding partner or partners.

The apportionment is at the discretion of the taxpayer. 

 

Example: transfer to a partnership: proportion of the chargeable interest

Blue and Yellow are both relevant owners.

Their entitlement was 50% each of the chargeable interest before the transfer. This can then be apportioned between their corresponding partners. 

Blue is a corresponding partner to Blue.

Yellow has one corresponding partner, who is Blue. They could then apportion all 100% to Blue.

 

The lower proportion

Step 4:  Find the lower proportion for each corresponding partner.

For each corresponding partner find the lower proportion. 

This is the lower of either:

  • the sums of the relevant owner apportionments (step 3)
  • the partner’s partnership share immediately after the transfer

 

Example: transfer to a partnership – the lower proportion

Blue is the sole corresponding partner. Blue’s sum from Step 3 was 100%. Their partnership share immediately after the land transfer is 40%.

The lower proportion if 40%.

 

The sum of lower proportions

Step 5: Add together the lower proportions for each corresponding partner. The result is the sum of the lower proportions (SLP).

Once you have a figure for the SLP, you can calculate the chargeable consideration.

 

Calculating the chargeable consideration

The formula for calculating the chargeable consideration is as follows:

MV x (100 – SLP)%

Where MV is the market value and SLP is the Sum of Lower Proportions.

 

Example: transfer to a partnership – the sum of lower proportions and chargeable consideration

The lower proportion for Blue is 40%. 

The partnership calculates the chargeable consideration by using the following formula:

MV x (100-40) % 

This adapts the chargeable consideration to take account of Blue’s retained interest in the chargeable interest transferred throughout.

Variation of example: transfer to a partnership – partners with equal shares

If the four partners each had an equal share in the partnership (25%), the calculation would be: 

Step 1: Relevant owners

Blue and Yellow are both relevant owners.

Step 2: Corresponding partners

Blue is the sole corresponding partner.

Step 3: Apportionment

The apportionment for Yellow:

50% as relevant owner to Blue as their only corresponding partner.

The apportionment for Blue:

50% as relevant owner to Blue as their only corresponding partner.

Step 4: Lower proportion

Blue is the only corresponding partner. The lower of the apportionment totalling (100%) or the partnership share (25%), is 25%.

Step 5: Sum of lower proportions

If you have more than one sum from step 4, you would add them together at this step. However, in this case, there is only one figure (25%).

The Sum of Lower Proportions is 25%. 

The chargeable consideration would become MV x (100-25)%.

Variation of example: transfer to a partnership – sole owner before transfer

If the chargeable interest was not under joint ownership before the transfer, the calculation would be:

Step 1 Relevant owners

Blue is the only relevant owner

Step 2 Corresponding partners

Blue is corresponding partner to Blue

Step 3 Apportionment 

The apportionment for Blue is 100% as relevant owner to Blue as corresponding partner

Step 4, Lower Proportion

Blue is the only corresponding partner. The lower of the apportionment (100%) or the partnership share (25%), is 25%

Step 5 Sum of lower proportions

There is only one figure 25% in this example if there were more add them together. 

The chargeable consideration would become MV x (100 – 25)%

 

Example: simple transfer to a partnership

Individual A has 100% ownership of an interest to be transferred.

The interest is transferred to a partnership, made up of 5 partners with equal 20% shares.

Step 1 Relevant owner = Individual A

Step 2 Corresponding partner = A as a partner

Step 3 Apportionment = 100% to A

Step 4 Lower proportion = 100% as relevant owner or 20% as partner = 20%

Step 5 Sum of lower proportions = 20%

MV x (100 – 20) %

Chargeable consideration is 80% of MV

The calculation has taken into account the ownership shares Individual A had before the transfer and after the transfer as a partner.

The chargeable consideration is reduced by the lower of the proportions (percentage) held either:

  • before the transfer
  • after the transfer

As the chargeable consideration is reduced the LBTT due is also reduced. This takes account of the part of the interest being retained by Individual A as a partner.

 

Connected companies and calculating the SLP

For transactions involving the transfer of a chargeable interest to a partnership, where a company (the connected company) would have been:

  • a corresponding partner, or
  • a relevant owner (the original owner)

where the definition of the corresponding partners includes connected persons only if they are:

  • individuals, and
  • the connected company and the original owner are members of the same group
    The sum of lower proportions can be used for the connected company as if they were a corresponding partner of the original owner.

Transfer of a partnership interest following arrangements that were in place at the time of a land transfer

Following a land transaction (the land transfer) that falls within Part 4, where:

  • there is a transfer of a partnership interest (the partnership transfer)
  • the partnership transfer is made by the person who makes the land transfer or a partner connected with someone who made the land transfer
  • the partnership transfer is made in accordance with arrangements in place at the time of the land transfer and
  • the partnership transfer is not a chargeable transaction, but for this part of the legislation

anti-avoidance provisions are in place to stop the understatement of the chargeable consideration. Arrangements in place at the time of the transfer include the deliberate increase of partnership shares.

In such cases, the partnership transfer is treated as a chargeable land transaction where the partners are taken to be the buyers. The chargeable consideration is:

  • a proportion of the market value of the interest transferred by the land transfer at the date of the partnership transfer

The proportion is either:

  • if the person making the partnership transfer is not a partner after the transfer
  • their share in the partnership before the transfer
  • if the person making the partnership transfer is a partner immediately after the transfer
    • the difference between their partnership share, before and after the transfer 

The land transfer and the partnership transfer are treated as linked transactions.

The responsible partners are those who were partners immediately before the transfer and who remain partners after and any person becoming a partner as a result of, or in connection with, the transfer.

 

Example: partnership transfer after land transfer to a partnership

Individual A has 100% ownership of a chargeable interest they transfer to a partnership. They a partner in the partnership (Partner A), along with two others. 

The three partners are equal partners.

To lower the LBTT payable they change the share ownership within the partnership, prior to the land transfer.

Partner A increases their share to 90% 

Partner B reduces their share to 5%

Partner C reduces their share to 5%

They agree that they will later adjust their partnerships shares back to a third each in six months’ time.

Working through Paragraph 14, the sum of lower proportions is 90%. Subsequently, the chargeable consideration is worked out by MV x (100-90%) = 10% of the MV = the chargeable consideration.

Six months later, the partners adjust their shares back to a third each. 

This partnership transfer will be treated as a chargeable land transaction.

The proportion of the market value of the chargeable interest is:

  • if the person making the partnership transfer is a partner immediately after the transfer
    • the difference between their partnership share, before and after the transfer 

Partner A - reduces their share from 90% to 33.3%

Chargeable consideration will be:

90%-33.3% = 56.7% 

of the market value of the subjects of the land transfer.

For further guidance see:

 

Withdrawal of money

When ‘qualifying events’ occur within three years of the effective date of a land transfer, they are treated themselves as a land transaction and a chargeable transaction for the purposes of LBTT.

The partners are treated as the buyers under the transaction.

A ‘relevant person’ is:

  • an existing partner who transfers a chargeable interest to a partnership
  • a person who transfers a chargeable interest to a partnership in exchange for a share in the partnership
  • a person who is connected to the existing partner or incoming partner.

The following are qualifying events:

  • withdrawal from the partnership of money or money’s worth which does not represent income profit by the relevant person of capital from the partner’s capital account
  • a withdrawal that reduces a person’s interest
  • a withdrawal due to a person ceasing to be a partner
    • the chargeable consideration is the value of the money or money’s worth withdrawn from the partnership
  • where the relevant person has made a loan to the partnership, any repayment of that loan to the partner
    • the chargeable consideration will be taken to be equal to the amount repaid by the partnership
  • where a relevant person has made a loan to the partnership, a withdrawal from the partnership of money or money’s worth that does not represent income profit
    • the chargeable consideration will be the value of the money or money’s worth not exceeding the loan amount

Chargeable consideration due to any qualifying event is not to exceed the market value of the chargeable interest at the effective date of the land transfer. The chargeable consideration should also be reduced by any amount that was previously chargeable to tax.

Where applicable any tax payable due to a qualifying event is to be reduced (but not below nil), by the amount of tax payable in respect of the transfer of an interest in a property investment partnership. 

For further guidance see:


For further guidance see:

Where a transaction is both a transfer to and from a partnership see: LBTT7004 Transfer between partnerships

Page Revisions

  • 4 July 2025, 14:35