Example 8: Tax Implications of Property Exchange and Subsale Transactions

SDLT on exchange subsales where part of the price is another property

When a property is resold before completion and the onward buyer pays with cash plus another property, SDLT is not based on cash alone. Each land transfer must be looked at separately, and the tax is usually charged on the higher of the market value of the land acquired and the value of what is given for it. Subsale relief may help the middle buyer on the first purchase, but it does not remove SDLT from any separate property they receive in the onward deal.

• HMRC’s example involves A selling Plot 1 to B, B reselling Plot 1 to C before completion, and C paying with £500,000 plus Plot 2.
• Because the arrangement is both a subsale and an exchange of land, special SDLT rules in section 47 and Schedule 4 apply.
• B’s original purchase from A may still be chargeable, although subsale relief can reduce or remove the normal SDLT charge on that step.
• B’s acquisition of Plot 2 from C is taxed on £500,000, not £400,000, because the rules compare Plot 2’s market value with the apportioned value of what B gives for it and use the higher amount.
• C’s acquisition of Plot 1 is taxed on £1 million because the exchange rules substitute the higher market value, even though the ordinary calculation might otherwise give £900,000.
• In practice, the difficult part is often making a just and reasonable apportionment of the non-cash consideration, so SDLT should not be assumed to follow only the cash paid or the value of the land received.

Scroll down for the full analysis.

SDLT on exchange subsales: how tax is worked out when part of the price is other land

This page explains an HMRC example about a subsale where the onward buyer does not pay entirely in cash, but instead gives cash plus another property. The point matters because SDLT is not worked out simply by looking at the cash paid. In an exchange situation, special rules can substitute market value or require a comparison between different amounts.

What this rule is about

The example deals with three linked land transactions completed together:

• A agrees to sell Plot 1 to B.
• B then agrees to sell Plot 1 on to C before completion.
• As part of C’s price for Plot 1, C transfers Plot 2 to B.

This is a subsale combined with an exchange. Those two features matter.

A subsale can potentially mean the intermediate buyer, B, does not bear SDLT in the ordinary way on its purchase from A, because subsale relief may be available. But that does not make the whole arrangement tax-free. If B acquires land from C as part of the onward deal, that separate acquisition by B must still be analysed.

The exchange element matters because where land is given as consideration for other land, SDLT uses special rules in section 47 and Schedule 4. Those rules are designed to stop the tax result being understated just because the parties have used land instead of cash.

What the official source says

HMRC’s example uses these facts:

• A sells Plot 1 to B for £1 million. That matches Plot 1’s market value.
• B pays A a £500,000 deposit.
• B then enters into a subsale with C for Plot 1.
• C gives B £500,000 cash plus Plot 2.
• Plot 2 has a market value of £400,000.
• The two agreements complete at the same time and in connection with each other.

HMRC says:

• C is acquiring Plot 1 from B in consideration of entering into another land transaction as vendor, namely C’s transfer of Plot 2 to B.
• Section 47 and paragraph 5 of Schedule 4 therefore apply.
• B is chargeable on the acquisition of Plot 1 from A, but B can claim relief.
• B is also chargeable on the acquisition of Plot 2 from C.
• C is chargeable on the acquisition of Plot 1 from B.

For B’s acquisition of Plot 2, HMRC says the chargeable consideration is the greater of:

• the market value of Plot 2, which is £400,000, and
• what B gave for Plot 2, worked out as the value in money’s worth of Plot 1 apportioned on a just and reasonable basis between the £500,000 cash received by B and Plot 2.

On HMRC’s figures, that apportioned amount is £500,000, so B is taxed on £500,000.

For C’s acquisition of Plot 1, HMRC says the chargeable consideration is again determined under paragraph 5 of Schedule 4. The market value of Plot 1 is £1 million. The consideration otherwise produced by the normal rules, read with the subsale provisions, would be £900,000. The higher amount is £1 million, so C is taxed on £1 million.

What this means in practice

The practical message is that in an exchange subsale, each land acquisition must be tested separately. You cannot just look at the net cash movement.

There are two distinct acquisitions here:

• B acquires Plot 2 from C.
• C acquires Plot 1 from B.

Each of those acquisitions has its own SDLT position.

B’s original contract with A also still matters. HMRC’s example says B is chargeable on that acquisition but can claim relief. That reflects the subsale rules: the intermediate transaction does not simply disappear, but relief may prevent a full SDLT charge falling on B in the ordinary way.

The exchange rules then affect the amount charged on the acquisitions between B and C. In broad terms, where land is exchanged for land, SDLT does not rely only on the stated price. Instead, the legislation compares:

• market value of the land being acquired, and
• the value of what is given for it.

The tax is charged by reference to the higher figure.

That is why B is taxed on £500,000 for Plot 2 even though Plot 2 is only worth £400,000. HMRC treats B as giving up part of Plot 1’s value in return for Plot 2, and on a just and reasonable apportionment that part is worth £500,000.

It is also why C is taxed on £1 million for Plot 1 even though the combination of cash and other statutory consideration rules might otherwise suggest £900,000. The exchange rule substitutes the higher market value figure.

How to analyse it

When faced with a transaction like this, a sensible way to analyse it is:

1. Identify every land transaction separately. In a subsale with an exchange, there may be more than one acquisition that attracts SDLT.
2. Check whether the contracts complete together and in connection with each other. HMRC’s example depends on that linkage.
3. Ask whether any party is acquiring land in consideration of entering into another land transaction as vendor. If so, the exchange rules in section 47 and Schedule 4 may apply.
4. For each acquisition, compare the market value of the land acquired with the value of what is given for it.
5. If what is given includes part of another property transaction rather than a simple cash price, work out the value in money’s worth and apportion it on a just and reasonable basis.
6. Consider separately whether subsale relief applies to the intermediate buyer’s original acquisition.

The phrase “just and reasonable basis” is important. It means the legislation does not always provide a mechanical formula. The apportionment must fairly reflect the value attributable to the land given in exchange.

Example

Illustration based on HMRC’s example:

• A agrees to sell Plot 1 to B for £1 million.
• B then agrees to sell Plot 1 to C.
• C will pay B £500,000 in cash and transfer Plot 2.
• Plot 2 is worth £400,000.

B’s acquisition of Plot 2 from C is not taxed simply on Plot 2’s own value. The rules compare:

• market value of Plot 2: £400,000, and
• the apportioned value of what B gives for Plot 2: £500,000.

The higher figure is £500,000, so that is B’s chargeable consideration for acquiring Plot 2.

C’s acquisition of Plot 1 is also tested under the exchange rule. Plot 1 is worth £1 million. Even if the ordinary consideration calculation would otherwise produce £900,000, the higher market value figure applies. So C is taxed on £1 million.

Why this can be difficult in practice

The hard part is often not spotting that there is an exchange. The hard part is valuing and apportioning the consideration correctly.

In particular:

• The amount attributed to the land element may not match the market value of that land.
• A just and reasonable apportionment can involve judgement.
• The commercial reasons why one party accepts land worth less than the nominal value given up do not necessarily reduce the SDLT figure. HMRC’s example expressly says Plot 2 is commercially beneficial to B, but the statutory comparison still leads to a £500,000 chargeable consideration.
• The interaction between subsale relief and exchange consideration can be difficult because different rules apply to different parts of the overall arrangement.

This means the legal form and the economic substance both need careful attention. A reader should not assume that the SDLT result follows the cash paid, the parties’ negotiated values, or the market value of only one of the plots.

Key takeaways

• In an exchange subsale, SDLT must be worked out separately for each land acquisition in the arrangement.
• Where land is given as consideration, the chargeable consideration may be the higher of market value and the value of what is given.
• Subsale relief may help the intermediate buyer on the original purchase, but it does not remove the need to tax any separate land acquired as part of the onward deal.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example 8: Tax Implications of Property Exchange and Subsale Transactions

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