SDLT From and estate to LTD Company

[colsey25]

Hello,

This is my first post so apologise if its complex, I'm trying to find out id SDLT is payable on this transaction, me and 2 sisters have inherited 4 buy to let properties, the only way we could keep them and carry on renting them out and have equal ownership is to transfer them into a LTD company and re finance and pay off mortgages, this we have nearly done, I am told because we are already a defacto partnership transferring them to the same group ie the LTD company with the same directors then SDLT is not payable .gov.uk gives conflicting advice to a novice like me. I was told tht The SLP is the amount of connectivity between the partners of the partnership and the shareholders of the company as per s1122 Corporation Taxes Act 2010.

Any advice would be appretiated

TIA

[Mr Dell]

Definition of partnership.

(1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.

So a partnership only exists when you are carrying on in business. My understanding is that you have to show you are actively managing a letting business for a partnership to exist and not just the recipient of rental income.

The reason for the confusion is because HMRC talk about receiving rents on a second property "as a property business". So the Revenue seem to be running two different interpretations for the word "business" One when you rent a property and you run a property business, and the second definition for the purposes of the Partnership Act.

So as far as HMRC is concernted if you are just the passive recipient of income and don't actively manage the business (as per Revenues description) HMRCs view is that there is no partnership you are joint owners of an investment. (so like a bank account receiving bank interest). So what points to whether you actively managing the business, well if you have a managing agent then you are not running a business. So the question for you is did you inherit a business or an investment? I believe that there was a case that showed 20 hours of work per week constituted a business. So running around doing repairs etc. Is there going to be sufficient scope to complete that amount of work on four properties? are you looking expand? all of this will be taken into account.

On the brightside I doubt HMRC will look too closely because they don't have the resources to do so - But that is not reason for not complying with the law as you interpret it.

[maths]

Whilst incorporation of a partnership involving a land transfer precipitates no SDLT charge it is probabilistically speaking unlikely that you are actually carrying on in partnership.

[SDLT Geek]

I agree with maths that is unlikely that the properties are the assets of a partnership. So a transfer to a connected company will result in a charge to SDLT based on the market value of the property under Finance Act 2003 s53.

[bd6759]

Definition of partnership.

(1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.

Don't cherry pick. If you turn to the next page it says:

2(1) Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.
[/quote]

The reason for the confusion is because HMRC talk about receiving rents on a second property "as a property business". So the Revenue seem to be running two different interpretations for the word "business" One when you rent a property and you run a property business, and the second definition for the purposes of the Partnership Act.

"Property business" a term imposed and defined by statute (see s 260-s264 ITTOIA), not HMRC

[Mr Dell]

BD6759 maybe you should read "Ramsay v CRC" 2012.

it is interesting you are suggesting that both Maths and SDLT Geek are incorrect. They summarised my post perfectly and if I was the questioner based on my experience I would follow the advice given.

[bd6759]

I am not suggesting they are incorrect. Quite the reverse. I was expanding on your extract of the Partnership Act to say that it makes it clear that joint ownership of property does not create a partnership.

I also clarified that the term Property Businessss is defined in statute, and that is the definition adopted by HMRC and others.