that’s another fine mess you have got me into “Gordon”

The use of partnership structures by the property industry to avoid Stamp Duty Land Tax (SDLT) on transactions has inevitably resulted in legislation to prevent tax avoidance.

Before the Finance Act 2003, partnerships could transfer assets from one partner to another as partners joined and left a partnership without having to pay stamp duty.

SDLT now has to be accounted in any partnership change where there was an underlying property transaction. SDLT was calculated on the value of the interest transferred and this could easily be understood.

However, as a result of recent changes SDLT now becomes potentially payable when there is a change in partnership profit-sharing ratios rather than where there is an underlying property transaction. Both solicitors and accountants are at present struggling to work out the consequences of the new formula for calculating SDLT, as in many partnerships the underlying ownership of the assets does not reflect the profit-sharing ratios.

Some partners may hold the property within the partnership and receive a prior share of profits to take account of their interest in the property. The remaining partners will have no interest in the property and will not receive any income from it.

This may now result in charges to SDLT when new partners join or leave such partnerships even if they do not acquire or dispose of any interest in the property.

There may now be charges to SDLT in circumstances where a potential charge to tax was not envisaged, for example, the appointment of non-equity or fixed share partners may now give rise to a charge to tax.