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Farming partnerships: beware the higher rate Stamp Duty Land Tax (SDLT) charge on additional dwellings

Stamp duty land tax (SDLT) can be a significant cost on property transactions – and an area that farming partnerships need to be aware of, says Andrew Jackson’s tax partner, Fiona Phillips

It is well known that partnerships are treated for the purposes of income tax as tax transparent, with the profits from the trade of the partnership being taxed in the hands of the individual partners.

What is probably less well understood is that properties held as partnership assets will be treated, for the purposes of SDLT, as being owned by the partners. If the properties in question are dwellings,  this can have an effect on the rates of SDLT payable on further purchases of dwellings by the partners, as additional dwellings are subject to a 3% SDLT surcharge.

We have recently advised a client (A) who was purchasing a house to be his main residence. Although he wasn’t selling a previous main residence, A confirmed that he owned no other property and so the normal rates of SDLT would be applicable. However on further investigation it became apparent that A was in partnership with his brother and sister. The partnership farmed several hundred acres and in addition,  A, along with his brother and sister, had a property letting partnership comprising several cottages which are let on assured shorthold tenancies.

As partners are treated as owning any partnership property, A was therefore liable to SDLT at the higher rate (ie with the 3% surcharge) on his additional dwelling.

There is an exemption to this: if a residential property held by a partnership is used for the purposes of the trade carried on by the partnership, then those dwellings are not treated for this purpose as held by the individual partners and the higher rate would not be payable on a main residence acquisition by a partner.

In this case, the property wasn’t used in the farming trade (as perhaps a farm worker’s cottage might be); it was a letting business. HMRC’s guidance is clear that a property letting business, or any business exploiting land for rent carried on by a partnership, is not a trade.

As the above case demonstrates, SDLT is a complex area and you should seek professional advice at an early stage to ensure all circumstances are disclosed and to avoid the unexpected.

Our friendly team is here to help, so please get in touch with us today by emailing fiona.phillips@andrewjackson or contacting 01482 325242


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