SDLTM09920 - SDLT - increased rates for non-resident transactions: Non-resident in relation to a chargeable transaction: Companies, second condition, non-UK control test, general partners - para 9(7) Sch 9A FA03

(All legislative references are to Sch 9A FA03 unless otherwise stated)

For the purposes of the surcharge, a general partner in a limited partnership is not a relevant participator unless they possess, or are entitled to acquire, rights that entitle them, in the event of the winding up of the company or in any other circumstances, to receive more than 1% of the assets of the company which would then be available for distribution among its members (paragraph 9(7)).

Example

Hollow LP has the following partnership structure:

  • Dominic, general partner (0.5%);
  • Eva, limited partner (49.25%); and
  • Hope, limited partner (49.25%).

Hollow LP is the 100% shareholder of Inadu Ltd, a company that is UK resident for the purposes of Corporation Tax. Inadu Ltd is a close company under paragraph 8, and is not an excluded company.

On 1 February 2025, Inadu Ltd purchases a freehold residential property in Northern Ireland for £850,000. To determine whether Inadu Ltd is non-resident in relation to the transaction, we need to apply the non-UK control test set out in paragraph 9.

CT rules apply in the context of the control test at section 450 Corporation Taxes Act (“CTA”) 2010 and S439 CTA2010 to the members of a partnership rather than the partnership itself, even where the partnership is an LLP. As such, in order to determine whether Inadu Ltd meets the non-UK control test, the partners’ residence status must be tested. This will conclude whether the partners are relevant participators and whether relevant participators control Inadu Ltd.

As the purchaser in this transaction is Inadu Ltd (a company), condition A at paragraph 5(3) applies, and the residence test at paragraph 5(1) is used to determine the residence status of each partner. See SDLTM09890 for more details on the paragraph 5(1) residence test.

Between 2 February 2024 and 1 February 2025:

  • Dominic spent 150 days in the UK. He is therefore non-resident in relation to the transaction;
  • Eva spent 275 days in the UK. She is therefore UK resident in relation to the transaction; and
  • Hope spent 360 days in the UK. She is therefore UK resident in relation to the transaction.

As the general partner of Hollow LP, Dominic exercises management control over Inadu Ltd, and as such exercises general control. As Dominic only holds 0.5% of the shares and voting rights, paragraph 9(7) doesn’t apply and Dominic is a general partner for the purposes of paragraph 9. Hence, the condition at 9(3)(b) is not met, Dominic’s non-resident status is ignored for the purposes of the non-UK control test, and Hollow LP is not a relevant participator of Inadu Ltd in relation to the transaction. The non-UK control test is therefore not met, and the purchase is not liable to the surcharge.