Understanding SDLT Charges for Transactions Between Connected Companies

SDLT market value rule for connected company land transactions

In some land deals involving connected companies, SDLT is not based on the price actually paid. Instead, the law may require SDLT to be calculated using the land’s market value, which can increase the tax due. This commonly needs checking where a company buys from a connected person or where shares form part of the consideration.

• SDLT is usually charged on the consideration given, but special rules can replace this with market value in certain connected-party company transactions.
• The rule may apply where a company buys land from someone connected with it.
• It may also apply where some or all of the consideration is shares in a company connected with the seller.
• If the rule applies, the contract price alone is not enough; the land’s market value at the effective date of the transaction must be established.
• This can affect the SDLT return, the amount of SDLT payable, and the valuation evidence needed to support the filing.
• HMRC guidance is helpful, but the legal position is determined by Finance Act 2003, section 53 and the exact statutory conditions.

Scroll down for the full analysis.

SDLT and connected companies: when market value is used instead of the actual price

This page explains a specific SDLT rule for land transactions involving connected companies. In some cases, SDLT is not worked out by looking only at what was actually paid. Instead, the law can substitute the market value of the land. This matters because SDLT may be charged on a higher amount than the stated consideration.

What this rule is about

SDLT is usually charged by reference to the chargeable consideration for a land transaction. In straightforward cases, that means the price paid or other value given for the land.

But special rules apply where the transaction involves connected parties, especially companies. The concern is obvious: if parties are connected, the stated price may not reflect the true value of the land. The legislation therefore uses a market value rule in certain connected-company situations.

The source material points to Finance Act 2003, section 53. It highlights two situations where deemed market value may apply.

What the official source says

The official material says that you should look to the market value rule where:

• a company buys land from a person with whom that company is connected, or
• some or all of the consideration consists of the issue or transfer of shares in a company with which the seller is connected.

In those cases, the land may be treated as being acquired for its market value rather than for the actual consideration given.

The source itself is brief and refers the reader to further HMRC material on deemed market value. The important point is that this is not a general rule for every company transaction. It is aimed at particular connected-party arrangements described by the legislation.

What this means in practice

If the rule applies, the SDLT calculation can change significantly. A low transfer price between connected parties does not necessarily reduce SDLT. Likewise, if the consideration includes shares, the transaction may still be taxed by reference to the market value of the land.

For taxpayers and conveyancers, this means the stated contract price is not always the end of the analysis. You need to ask whether the buyer is a company, whether any party is connected with that company or with the seller, and whether shares form part of the consideration.

This can affect:

• the amount reported on the SDLT return
• the SDLT due
• the valuation evidence needed to support the filing position

It also means that intra-group, family-company, owner-managed business, and restructuring transactions may need closer review even where the paperwork appears simple.

How to analyse it

A sensible way to approach the issue is to work through the following questions.

• Is there a land transaction that would otherwise be chargeable to SDLT?
• Is the buyer a company?
• Is the seller, or another relevant person, connected with that company?
• Does any part of the consideration consist of shares?
• If shares are involved, is the seller connected with the company whose shares are being issued or transferred?
• If the market value rule applies, what is the market value of the land at the effective date of the transaction?

That last question is often the practical one that matters most. If market value is substituted, the tax analysis becomes partly a valuation exercise, not just a legal one.

It is also important to keep separate:

• the legal rule that determines whether market value must be used, and
• the factual exercise of establishing what that market value actually is.

Example

Illustration: A company acquires land from a person connected with it. The contract states a price below what an unconnected buyer would pay in the open market. In that situation, the SDLT analysis does not stop with the contract price. If the statutory rule applies, SDLT is calculated by reference to the market value of the land instead.

A similar issue can arise if the seller receives shares, rather than only cash, and those shares are in a company with which the seller is connected. The share element of the deal does not prevent the market value rule from applying.

Why this can be difficult in practice

The main difficulty is usually not understanding the broad idea. It is applying the connected-person rules correctly and identifying whether the exact statutory conditions are met.

In practice, difficulty may arise because:

• corporate and personal relationships can be indirect or layered
• the transaction may involve mixed consideration, including shares
• the parties may assume that the actual agreed price is enough for SDLT purposes when it is not
• valuation of the land may be disputed or uncertain

The HMRC manual is also only guidance. The legal effect comes from the legislation. So if there is any tension between a simplified manual summary and the statutory wording, the legislation is what governs the outcome.

Key takeaways

• In certain connected-company land transactions, SDLT is based on market value rather than the actual consideration.
• This can apply where a company buys from a connected person, or where consideration includes shares in a company connected with the seller.
• To apply the rule properly, you need to check the connection tests and, if necessary, establish the land’s market value.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding SDLT Charges for Transactions Between Connected Companies

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