SDLT Implications for Property Transfer to Connected Company: Example Analysis

SDLT on transferring residential property for shares in a connected company arrangement

When a person transfers residential property and receives newly issued shares instead of cash, SDLT is worked out by looking at market value rather than any nominal share amount. The key issue is whether the transferor is connected with either the company receiving the property or the company issuing the shares, because that can change whether SDLT is based on the value of the shares or the value of the property.

• The example involves three parties: an individual transfers the property to one company, while another company issues shares as the consideration.
• If the individual is not connected with either company, SDLT is generally charged on the market value of the shares received.
• If the individual is connected with either company under section 1122 CTA 2010, section 53 can apply so that SDLT is usually based on the market value of the property.
• If the shares are worth more than the property, the higher market value of the shares may still be the chargeable consideration.
• Both the company receiving the land and the company issuing the shares must be checked for connection, not just one of them.
• In practice, proper valuation evidence for both the property and the shares at the effective date is important.

Scroll down for the full analysis.

SDLT when a person transfers residential property and receives shares: connected company example

This page explains how SDLT can be worked out where an individual transfers a freehold residential property and, instead of cash, receives newly issued shares. The point matters because the tax charge may be based either on the value of the shares received or on the market value of the property itself, depending on whether the parties are connected.

What this rule is about

The issue is how to measure the chargeable consideration for SDLT when land is transferred in exchange for shares rather than money. In a simple sale, the price paid is usually clear. In a share-for-property arrangement, the position is less straightforward because the person transferring the property is getting shares, and the shares may be issued by a different company from the one receiving the property.

The HMRC manual example deals with a three-party structure:

• an individual, A, transfers freehold residential property;
• company B receives the property; and
• company C issues new shares to A as the consideration.

The main legal question is whether A is connected with B or C for the purposes of section 1122 of CTA 2010. That connection question affects whether the market value rule in section 53 applies.

What the official source says

The official material says that the SDLT analysis turns on two connection tests:

• Is A connected with company B under section 1122 CTA 2010?
• Is A connected with company C under section 1122 CTA 2010?

If A is not connected with either B or C, the chargeable consideration is the market value of the shares acquired. The residential rates then apply to that amount at the effective date of the transaction.

If A is connected with B or C, section 53 applies. In that case, the chargeable consideration is the market value of the property at the effective date of the transaction.

The example then adds an important qualification. If the market value of the property is lower than the market value of the shares issued, the chargeable consideration is the market value of the shares instead, charged at the appropriate rate.

What this means in practice

The practical effect is that you do not automatically use the nominal value of the shares, or whatever figure the parties happen to attach to them. You need to identify the real value passing and then test whether the connected persons market value rule applies.

In broad terms:

• if there is no relevant connection, SDLT is based on what A receives, namely the market value of the shares;
• if there is a relevant connection, SDLT is usually based on the market value of the property transferred;
• but if the shares are worth more than the property, the higher share value can still set the chargeable consideration.

This means the transaction cannot safely be analysed just by looking at the company that receives the land. The company issuing the shares also matters. A connection with either company may be enough to bring section 53 into play.

For conveyancers and advisers, the valuation evidence is therefore central. You may need:

• a market valuation of the residential property at the effective date;
• a market valuation of the shares issued at the same date; and
• a careful analysis of whether A is connected with B, C, or both.

How to analyse it

A sensible way to approach this kind of transaction is as follows.

1. Identify the land transaction. Here, the freehold residential property is being transferred to company B.
2. Identify the actual consideration given for that transfer. Here, A receives newly issued shares in company C rather than cash.
3. Check whether A is connected with company B under section 1122 CTA 2010.
4. Check whether A is connected with company C under section 1122 CTA 2010.
5. If A is not connected with either company, start from the market value of the shares acquired.
6. If A is connected with B or C, apply the section 53 market value approach and compare the market value of the property with the market value of the shares.
7. Use the amount that the official example indicates is chargeable in those circumstances.
8. Apply the SDLT rate appropriate for residential property at the effective date.

The key point is that the connected persons question is not a side issue. It can change the tax base completely.

Example

Illustration: A transfers a freehold residential property to company B. In return, company C issues new shares to A.

Suppose the property is worth £275,000 at the effective date.

If A is not connected with B or C, the chargeable consideration is the market value of the shares A receives. If those shares are worth £275,000, SDLT is charged on £275,000 at the residential rate applicable at that date.

If A is connected with B or C, section 53 applies. The manual says the chargeable consideration will be the market value of the property at the effective date. On these facts that would be £275,000.

If, however, the property is worth less than the shares issued, the manual says the chargeable consideration becomes the market value of the shares instead. So if the property were worth £250,000 but the shares issued were worth £275,000, the chargeable consideration would be £275,000.

Why this can be difficult in practice

There are several points that can make this analysis difficult.

First, the connection test can be technical. The manual points to section 1122 CTA 2010, but whether a person is connected with a company may depend on control and related-party rules that need to be applied carefully to the actual facts.

Second, this is a triangular arrangement. The land goes to one company, but the shares come from another. That makes it easy to overlook the need to test A’s relationship with both companies.

Third, valuation may not be straightforward. The market value of a residential property may be disputed, and the market value of newly issued shares can be even more fact-sensitive, especially if the company is private or the shares carry unusual rights.

Fourth, the manual example gives the result in summary form. It identifies the outcome, but not the full reasoning chain behind every valuation comparison. In practice, the transaction documents, the rights attached to the shares, and the timing at the effective date may all matter.

Key takeaways

• Where residential property is transferred for shares, SDLT is not necessarily based on a cash price because there may be no cash price.
• You must check whether the transferor is connected with the company receiving the property or the company issuing the shares.
• If there is a relevant connection, the market value rule in section 53 can apply, and valuation of both the property and the shares may be needed.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: SDLT Implications for Property Transfer to Connected Company: Example Analysis

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