Reforms to UK stamp duty could mean that partnership interests will be removed from the scope of stamp duty. This will be particularly welcome to fund managers involved in secondary transactions. The UK’s archaic stamp duty (and stamp duty reserve tax) system are currently the subject of a government consultation, which proposes, amongst other things, to remove the dual stamp duty/stamp duty reserve tax system with a new single tax.
In practice, as HMRC acknowledges in its consultation, stamp duty is not normally paid on the transfer of partnership interests. We see this unfold in practice in two ways. First, there is no legal requirement to submit a transfer to be stamped, so if it is concluded that a stamped transfer of a partnership interest will never be required as a practical matter, stamping the transfer might be viewed as unnecessary (particularly as the absence of a stamped transfer should not prejudice the ability to write up the register of partners to reflect the transfer). Second, if the partnership interest has no UK nexus and the transfer is executed outside of the UK, then the transfer would be out of the scope of stamp duty.
That said, particularly in commercial secondary transactions, parties may (in view of stamp duty concerns) opt to execute a transfer of a partnership interest outside of the UK. In this respect, there is often detailed provision in secondary transaction documents allocating liability between the parties for paying any eventual stamp duty with respect to the transfer.
As a result, while UK stamp duty is unlikely in practice to be an actual cost within secondary transactions and other partnership transfers, its existence can create uncertainty and complication for the parties involved.
You can read more on these proposed reforms from our tax colleagues.
