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  • Tax

    Forming Partnership to Avoid Stamp Duty

    It is my understanding that if 2 or more people are running a lettings business, then a partnership exists under the Partnership Act 1890. You do not have to be an LLP or even registered as a partnership with HMRC for the treatment of partnership rules to be applied to Stamp Duty. So as long as you are running a business you can avoid Stamp Duty when incorporating.

    HMRC will consider you are running a business if the following applies:

    1. Activities are a serious undertaking earnestly pursued.

    2. Activity is a function pursued with reasonable or recognisable continuity.

    3. Activity has a certain measure of substance in terms of turnover.

    4. Activity is conducted in a regular manner and on sound and recognised business principles.

    5. Activities are of a kind which, subject to differences in detail, are commonly made by those who seek to profit from them.

    So why do I constantly see bandied about all over the place that people should form a partnership and then wait 3 years before incorporating to avoid Stamp Duty? If you are a proper business there is no need to wait.

    Is this an example of tax advisors and accountants playing it safe when there is absolutely no need to? Or am I missing something?

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    The 3 year rule relates to the transfer of property to the partnership not the incorporation. Yes if you meet the HMRC rules then you have a partnership. Note HMRC take a far stricter approach than pure Partnership Act. You need sufficient business activity basically (ie not outsource everything) and not just a co-investment.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    I think there is a general misconception on this forum and elsewhere that co investors that are running a proper lettings business can't incorporate and avoid Stamp Duty unless they form a partnership that is registered at HMRC for 3 years.

    This is the point I'm making.

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    The three year “rule” has always been misinterpreted by many advisors.

    Back in the day when HMRC gave clearance it was never an issue but now make sure you meet the criteria.
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    I'm just concerned that there are a lot of landlords that are running a proper lettings business that are forming partnerships when there is no need to and then waiting 3 years to incorporate. This misinformation is costing a lot of people a lot of money.

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    Why are you concerned about other landlords and their actions.If they have not consulted a tax expert and are relying on the bloke down the pub for  free advice then they have no one to blame but themselves when they get it wrong

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    Tax experts are putting this misinformation out there. I’ve not seen anywhere on this forum where this issue has been explained properly. I have seen where landlords are advised to form partnerships and wait 3 years before doing what a lot of them could do now.

    Waiting 3 years before incorporating due to misinformation needs calling out.
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    Thanks, I agree specialists / advisors are misleading and making the whole 'topic' far more complex than it should be. Paying for tax advice is correct & necssary, however we should not pay many times over than necessary  - If I understand it correctly?

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    The subject is extremely complex.Are you suggesting that one person should pay for advice and then share it with all and sundry?

    I

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    It's like anything in life, there are good and bad advisors. A lot of advisors are on this forum to gain business. Nothing wrong with that. All part of good marketing. A lot of them give good free advice.

    However it is in all their interests to make issues sound more complex than they really are. I'm not saying they all do that. They don't.

    The other problem is that quite often they give out conflicting advice. Landlords pick up on some of this advice and then after a while some of this incorrect advice becomes perceived wisdom. My thread is a perfect example of that. I'm very confident that the vast majority of people reading my thread thought they had to form a partnership and wait 3 years before incorporating to avoid stamp duty.

    Forming a partnership should only be recommended to landlords that are borderline cases to strengthen their case. The impression should not be given that all landlords have to do it.

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    Good thread - a topic that does need more discussion on this forum.

    Are you a tax advisor? If not - how much would you consider reasonable to pay for such advice?

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