Should pension schemes pay stamp duty land tax (SDLT) on commercial property acquisitions?

The issue

As a general rule a purchaser (including pension schemes) will pay SDLT on any consideration paid for a property. Non-residential SDLT rates are:

  • 0% for the first £150,000
  • 2% on the next £100,000
  • 5% on anything over £250,000

Therefore the purchaser of a property for £1M would typically have to pay SDLT of £39,500.

However we should not oversimplify things and lose sight of other well-established SDLT principles. Previous Tax Bites have talked about how the incorporation of family partnerships into a company do not generally give rise to SDLT. The legislation here is complex but the principle is not. Broadly if a company acquires a property from a partnership and it is connected to the partners then no SDLT will be due.

Although these rules are usually applied in relation to incorporations they can have much wider application and should be considered when pension schemes (for example) acquire property.

Pension schemes

It is not uncommon for partnerships to sell property to a pension scheme, particularly as a preliminary step to an incorporation. In these circumstances careful consideration should be given to the SDLT position. Anecdotally we understand that some schemes are blindly paying the SDLT without considering the implications of the partnership rules. If the schemes are ‘connected’ to the partnerships then it should usually follow that no SDLT is due. The precise rules for determining ‘connection’ are set out in the legislation but we believe that these will often be met, especially when the partners are members of the scheme.

Forbes Dawson comment

The take home message here is that pension schemes should consider their SDLT position when acquiring property from a partnership and they should review transactions which have taken place over the last four years as reclaims may be available. In certain circumstances the pension scheme itself may constitute a partnership (for example if it has multiple members) and this can potentially widen the SDLT relief so that it also applies to non-partnership transferors such as companies.

In more general terms any property transaction between a partnership and potentially connected entities should be scrutinised before SDLT is paid.

 

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