What is a connected party for SDLT purposes?

Connected parties include spouses and civil partners, relatives (parents, children, siblings, grandparents, grandchildren), and companies and their directors, shareholders, or connected persons. For SDLT purposes, the definition of connected persons is based on the rules in the Corporation Tax Act 2010. Connected persons include: spouses and civil partners; relatives (ancestors and descendants, plus siblings); and companies and their directors, shadow directors, or persons connected with them. The definition is broad and catches many family and corporate relationships. When a property transaction takes place between connected persons, the market value rule may apply. Relevant legislation: Section 1122 Corporation Tax Act 2010 (definition of connected persons). Example: A father sells a property to his daughter for £300,000. The market value is £500,000. As father and daughter are connected persons, SDLT is charged on the £500,000 market value, not the £300,000 actual price. Common mistake: Not realising that family members are connected persons and that SDLT may be charged on market value, not the price paid.

Is SDLT charged on market value for family property transfers?

Yes. If a property is transferred between connected persons (e.g., family members) for consideration, SDLT is charged on the market value of the property, not the actual price paid. When a property is transferred between connected persons and there is consideration (money, assumption of mortgage, or other consideration), SDLT is charged on the market value of the property. This rule prevents connected parties from reducing SDLT by setting an artificially low price. The market value is the price the property would fetch on the open market. If the property is a gift (no consideration at all), SDLT is not payable, but other taxes (e.g., Capital Gains Tax, Inheritance Tax) may apply. Relevant legislation: Schedule 1 Finance Act 2003, Paragraph 8 (market value); Section 1122 CTA 2010. Example: A parent transfers a property worth £400,000 to their child for £200,000. SDLT is charged on £400,000 (market value), not £200,000. The SDLT on £400,000 is £10,000 (residential, standard rates). Common mistake: Assuming SDLT is charged on the price paid. For connected party transactions, the market value rule overrides the actual price.

Can I gift a property to a family member without paying SDLT?

Yes, if the transfer is a genuine gift with no consideration at all, no SDLT is payable. However, if the recipient assumes any mortgage or provides any consideration, SDLT may apply. A genuine gift of property — where the transferor receives no consideration in return — is not subject to SDLT. However, the position changes if there is any consideration. If the recipient assumes responsibility for an existing mortgage, the mortgage debt is treated as consideration and SDLT may be payable (on the market value, since the parties are connected). If the transferor receives any other benefit (e.g., the recipient agrees to provide care), this may also constitute consideration. Capital Gains Tax and Inheritance Tax implications should also be considered. Relevant legislation: Schedule 1 Finance Act 2003 (chargeable consideration); Schedule 3 FA 2003 (exemptions). Example: A parent gifts a property worth £500,000 to their child, with no mortgage and no consideration. No SDLT is payable. If the property has a £200,000 mortgage which the child assumes, SDLT may be payable on the £200,000 mortgage debt (as consideration), calculated at market value rates. Common mistake: Assuming a mortgage when receiving a gifted property, turning a non-chargeable gift into a chargeable transaction.

How does SDLT work for transfers between a company and its directors?

Transfers between a company and its directors (or shareholders) are connected party transactions. SDLT is charged on market value if there is consideration. A company and its directors (and their connected persons) are treated as connected for SDLT purposes. This means that a property transfer between a company and its director is subject to the market value rule. If a company transfers property to a director, or vice versa, and there is consideration, SDLT is charged on the market value of the property. This is a common scenario in corporate restructuring and requires careful planning to ensure the correct SDLT treatment. Relevant legislation: Section 1122 Corporation Tax Act 2010; Schedule 1 FA 2003 Paragraph 8. Example: A director purchases a property from their company for £300,000. The market value is £500,000. SDLT is charged on £500,000, not £300,000. The SDLT is £15,000 (residential, standard rates on £500,000). Common mistake: Structuring a company-to-director property transfer at an undervalue without realising SDLT will be charged on market value.

Are there SDLT reliefs for connected party transactions?

Yes. Certain reliefs, such as group relief and reconstruction relief, may be available for connected party transactions involving companies. Specialist advice is needed to determine which reliefs apply. There are SDLT reliefs available for certain connected party transactions. Group relief may apply where property is transferred between companies within the same 75% group. Reconstruction relief may apply where a company is reorganised and property is transferred as part of the reorganisation. These reliefs can significantly reduce or eliminate SDLT on corporate transactions. However, the conditions are strict and specialist advice is essential to ensure the reliefs are properly claimed and documented. Relevant legislation: Schedule 7 Finance Act 2003 (group relief); Schedule 7 FA 2003 (reconstruction relief). Example: A parent company transfers a property to its 100% subsidiary. As the companies are in the same 75% group, group relief may apply, meaning no SDLT is payable. However, the relief must be properly claimed on the SDLT return. Common mistake: Not claiming available group or reconstruction reliefs, resulting in unnecessary SDLT payments on intra-group transfers.

SDLT Advisory › Transactions

Connected Party Transactions & SDLT

Property transactions between family members, companies and their directors, and other connected parties are subject to special SDLT rules, including market value pricing.

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Property transactions between connected parties — such as family members, or between a company and its directors — are subject to special SDLT rules. The most important rule is that SDLT may be charged on the market value of the property rather than the actual consideration. This can result in significantly higher SDLT than expected if the transaction is not structured correctly.

Who Are Connected Persons?

For SDLT purposes, connected persons include spouses and civil partners, relatives (such as parents, children, siblings), and companies and their directors or shareholders. The definition is broad and includes various family and corporate relationships. If a property transaction takes place between connected persons, special rules apply.

The Market Value Rule

Where a property transaction takes place between connected persons and there is consideration, SDLT is charged on the market value of the property rather than the actual price paid. This means that even if a property is transferred for a nominal sum or below market value, SDLT is calculated on the full market value. This rule prevents connected parties from reducing SDLT by artificially setting a low price.

Gifting Property to Family Members

If a property is gifted (transferred for no consideration) to a connected person, no SDLT is payable because there is no chargeable consideration. However, if there is any consideration — even an assumption of mortgage — SDLT may be payable on the market value. The distinction between a gift and a sale at undervalue is critical for SDLT purposes.

Structuring Connected Party Transactions

Connected party property transactions should be structured carefully to ensure the correct SDLT treatment. Specialist advice can help identify the most efficient structure, whether that is a gift, a transfer at market value, or a transaction through a company or trust. Getting the structure right from the outset can save significant SDLT and avoid HMRC enquiries.

Key Points

What You Need to Know

SDLT on connected party transactions may be charged on market value, not the price paid
Connected persons include family members, spouses, and company directors/shareholders
Genuine gifts (no consideration) are not subject to SDLT
Assumption of a mortgage in a connected party transfer can trigger SDLT
Specialist structuring advice is essential before completing connected party transactions

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