Recent press reports have suggested that for certain transfers of commercial property into pension schemes, Stamp Duty Land Tax (SDLT) has been overpaid. Although the reasoning behind that suggestion is often left opaque the argument is as follows:
SDLT is chargeable on the transfer of a commercial property out of a partnership to:
- An existing partner;
- A former partner; and
- A person connected with the existing partner or a former partner.
Partnerships will own commercial property in specific proportions. To illustrate, let’s start an example:
Sam and Rachel own a commercial property that they lease to their company ‘Samchel Limited’.
Sam’s share of the commercial property is 20% and Rachel’s share is 80%.
This means that Sam and Rachel are in partnership together for the purposes of the Partnership Act. We go on:
Sam and Rachel decide to put their commercial property into a SSAS and make arrangements with a pension trustee.
The SSAS will pay £200,000 to acquire the property so SDLT due would be £1,000. However, because Sam and Rachel hold the property in a partnership and are transferring the partnership asset to themselves (in the SSAS) the SDLT calculation is different and is made by reference by the Sum of Lower Proportions (‘SLP’).
SLP is calculated as follows:
- Ascertain the partner who owns the property to be sold;
- For each partner owner, ascertain the corresponding partner on purchaser side (in this case, this will be the same partner but as trustee of the SSAS);
- For each corresponding partner, find the proportion of the property they’re entitled to prior to the transfer and the proportion of the property they’ll own after the transfer;
- Deduct the proportion of the property they’re entitled to before the transfer from the proportion of the property they’re entitled to after the transfer and that gives the SLP.
Before we go back to Sam and Rachel, let’s look at how this is meant to work:
A & B own two commercial properties worth £200,000 each. A has a 20% share and B has an 80% share. A retires from the partnership and, as part of A’s settlement, A is transferred one of the properties. As A is a connected person to the partnership, they pay SDLT on the Market Value of the Property, which is, we know, £200,000.
On the basis of the SLP calculation, A had a 20% share of the property in the partnership but this is going to be 100% owner after the transfer. So the SLP is 100%-20% = 80%.
The calculation for the value on which A has to pay SDLT is:
£200,000 x (100 – SLP)
£200,000 x (100 – 20)
£200,000 x 80%
SDLT payable on £160,000.
So, back to Sam and Rachel and how they avoid SDLT.
Before the transfer Sam owns 20% of the property and Rachel owns 80%. After the transfer to the SSAS Sam will own 20% of the property and Rachel will own 80% of the property.
The SLP calculation for both of them, then, is 100%.
£200,000 x (100 – SLP)
£200,000 x (100 – 100)
£200,000 x 0
SDLT is chargeable on 0% of the consideration.
This is a basic examination and example of how a property-owning partnership could transfer a commercial property into a SSAS and pay no Stamp Duty Land Tax. There are other structures that work in a similar way and the nature of the ‘connected person’ doctrine also increases the scope of the exemption’s application, but we’ll deal with them another time…
Comment
Proponents of this state that thousands of people may have overpaid stamp duty and there are reports of HMRC making the repayments of overpayments SSAS trustees have made on transfers of commercial properties into a SSAS. While we would err on the side of caution, in theory, it works in accordance with the law. It may well be the case that this stands up and an industry will likely emerge around SDLT recovery from HMRC from SSAS overpayment, and going forward SSASs will be aware of this loophole to the benefit of trustees.
