Can You Avoid Stamp Duty When Incorporating a Property Partnership?
It’s a question we hear quite often:
“If I own a property and put it into a partnership, then wait a few years before incorporating, can I avoid paying Stamp Duty Land Tax (SDLT)?”
The short answer? Possibly — but only if you meet some strict conditions and steer clear of several common traps.
Let’s unpack how it works.
The Basic Idea
There’s a set of rules in the Finance Act 2003 (Schedule 15) that allow certain “partnership-to-company” transfers to be free from SDLT.
In simple terms:
You run a genuine property business as a partnership.
Later, you transfer that business into a company.
The company’s shareholdings match the partners’ ownership proportions.
If those conditions are met, SDLT on the transfer can be reduced to nil.
Sounds great — but here’s where many people get caught out.
Key Conditions You Must Meet
1. It Must Be a Real Partnership
HMRC don’t accept “in name only” partnerships.
You need genuine business activity — not just co-owning a property.
Think: business bank account, partnership tax returns, proper accounts, and both partners actively involved in management.
2. Operate for a Meaningful Period
There’s no magic number of years in the law, but setting up a partnership purely to avoid SDLT will be challenged.
A track record of several years’ genuine trading and shared decision-making is your safest bet.
3. Correct Legal & Tax Setup
Register the partnership with HMRC.
Have a written partnership agreement (this is gold dust if HMRC ever ask questions).
4. Ownership Must Match
On incorporation, the shareholdings in the company must mirror the partners’ profit-sharing ratios.
Change the proportions and you risk losing the relief.
5. Beware Connected Companies
If you already control the company before the transfer, extra anti-avoidance rules may apply.
Common Pitfalls
No genuine partnership — HMRC regularly win cases where the paperwork existed, but the business reality didn’t.
Anti-avoidance rules — Section 75A FA 2003 can be used to attack arrangements with the main aim of avoiding SDLT.
CGT & Income Tax — SDLT relief doesn’t remove other taxes. You may still face Capital Gains Tax (though Incorporation Relief can sometimes defer this).
Mortgage complications — Lenders must agree to both partnership and company transfers.
Inheritance Tax effects — Moving assets can have IHT consequences down the line.
A Simple Example
If you and your spouse have run a rental property portfolio for several years as a genuine, registered partnership, with:
Proper accounts
Partnership tax returns
A written agreement
Joint decision-making
…and then you incorporate the business with identical shareholdings, the SDLT “deemed consideration” can be reduced to nil.
Final Word
Yes — it is possible to incorporate a property business without paying SDLT. But HMRC are alert to abuse, and the conditions are tighter than many realise.
If you’re considering this route, the safest first step is a detailed review of your setup. A poorly planned partnership could end up costing far more in tax, legal fees, and stress than it saves.