I have a new client with a property business consisting of around 10 properties (a mix of residential and commercial). The background is as follows:
1. The property business was owned 50/50 by husband and wife. It was transferred into a newly incorporated LLP years ago, with the husband, wife, and their adult child as partners.
2. According to the partnership agreement, the capital rights at the time were split 50% for the husband and 50% for the wife.
3. The profit-sharing ratio is 40% for the husband, 40% for the wife, and 20% for their adult child.
There were mortgages attached to the properties when they were transferred into the LLP. The capital ratios have not changed since setup. I’ve noticed that the income sharing ratio for the child has increased to 40%, leaving the husband leaving the husband and wife with 30% each.
I’m struggling with the SDLT implications here. On the initial transfer to the LLP, the husband and wife each gave up 10% of their income rights, and I’m wondering if SDLT might apply to this. My thinking is that there is a deemed disposal of part of the income entitlement when they gave up those rights.
However, the advice that the client received at the time centred around the fact that all the partners are connected persons (husband, wife, child), and therefore the Sum of Lower Proportions calculation comes into play to eliminate the SDLT charge.
The properties were transferred into the LLP at their MV.
I'm ok with the CGT side of things.
Any guidance/help on this would be greatly appreciated. Thank you.
