Guidance on Connected Companies and Notional Transactions under Section 53 FA03

SDLT market value rule for connected companies under section 75C(6)

When SDLT anti-avoidance rules in section 75C create a notional land transaction, the tax is not always based on the price actually paid. If the purchaser is a company connected with the vendor, section 53 can apply so that SDLT is charged on at least the land’s market value at the effective date, or a higher amount found elsewhere in the wider scheme, unless a section 54 exception applies.

• Section 75C can treat wider arrangements as a deemed land transaction, rather than looking only at the formal transfer document.
• If the deemed purchaser is a company connected with the vendor, section 53 may replace the actual consideration with market value.
• If the largest amount, or aggregate amount, in the scheme transactions is higher than market value, that higher figure may be used for SDLT.
• Any exceptions in section 54 must still be checked, as they can switch off the market value rule in some cases.
• The deemed transaction may sometimes keep the character of the original transfer, such as a distribution, but this depends on the facts and specific conditions.
• Whether parties are connected is tested under section 1122 of the Corporation Tax Act 2010, and applying the rules can be fact-sensitive.

Scroll down for the full analysis.

SDLT anti-avoidance: market value rules for transfers between connected companies under section 75C(6)

This page explains how the SDLT market value rule can apply where anti-avoidance legislation creates a notional land transaction and the parties are connected companies. The point matters because, in these cases, SDLT may be charged by reference to market value, or even a higher amount used elsewhere in the scheme, rather than the amount actually paid on the transfer.

What this rule is about

Section 75C FA 2003 is part of the SDLT anti-avoidance rules. It can treat arrangements as giving rise to a notional land transaction, rather than looking only at the formal land transfer in isolation.

The source material deals with what happens when, in that notional transaction, the purchaser is a company and is connected with the vendor. In that situation, section 53 FA 2003 may apply. Section 53 is the connected companies market value rule. Broadly, it can replace the actual consideration with market value.

So the issue is not simply whether land moved between connected parties. The real question is: once section 75C has constructed a notional transaction, how do the connected company rules apply to that deemed transaction, and what amount counts as the chargeable consideration?

What the official source says

The HMRC manual says that where:

• P is a company, and
• P is connected to V,

section 53 FA 2003 applies to the notional transaction created by section 75C.

The result is that the chargeable consideration for the transfer is taken to be at least the market value of the land at the effective date of the transaction.

The manual then adds an important qualification. If the largest amount, or the aggregate amount, for any of the scheme transactions is greater than that market value, that larger amount is taken as the chargeable consideration for the notional transaction.

The manual also says that, when deciding whether section 53 applies, you must consider the exceptions in section 54 FA 2003. Those exceptions can disapply the market value rule in some cases.

For section 54 purposes, the notional land transaction may, depending on the facts, retain the character of the original transfer. The example given is a distribution of a company’s assets. If the actual land transaction was such a distribution, the notional transaction may also be treated as having that character when applying sections 53 and 54. But the manual says that, for it to retain its character as a distribution, P would need to be an immediate shareholder of V.

Finally, the manual says that the connected persons test is determined using section 1122 of the Corporation Tax Act 2010.

What this means in practice

If section 75C applies, you do not stop with the amount shown in the transfer document. You must ask what notional transaction the legislation treats as occurring, and then test that deemed transaction under the connected companies rules.

If the purchaser in that notional transaction is a company connected with the vendor, SDLT is not necessarily based on the actual price. Instead:

• the consideration is at least market value at the effective date, and
• it may be higher if a larger amount appears in, or is produced by aggregating, the scheme transactions referred to by the manual.

This can significantly increase the SDLT charge. In practical terms, arrangements that seek to reduce the amount passing on the direct land transfer may still be taxed by reference to market value or to a higher amount found elsewhere in the overall scheme.

The section 54 exceptions remain important. The manual is making the point that a notional transaction is not necessarily stripped of the legal character of the underlying transfer. That matters because some exceptions depend on what kind of transaction it is. If the original transfer was, for example, a distribution, that feature may carry through to the notional transaction, but only if the facts support that analysis.

How to analyse it

A sensible way to approach the issue is as follows.

• First, identify whether section 75C is treating the arrangements as giving rise to a notional land transaction.
• Second, identify who is treated as purchaser and vendor in that notional transaction. The manual uses P and V for those parties.
• Third, ask whether P is a company and whether P is connected with V under section 1122 CTA 2010.
• Fourth, if they are connected, consider whether section 53 FA 2003 applies so that market value becomes the minimum chargeable consideration.
• Fifth, compare market value at the effective date with the largest amount, or aggregate amount, for any of the scheme transactions. If that amount is higher, the manual says that higher figure is used.
• Sixth, check whether any section 54 exception applies.
• Seventh, when considering section 54, ask whether the notional transaction retains the character of the original transfer. That may be critical where the original transfer was something like a distribution.

In short, the analysis is not only about valuation. It also depends on characterisation, connection, and whether an exception survives when the legislation reconstructs the transaction.

Example

Illustration: Company V transfers land as part of wider arrangements that fall within section 75C. The legislation treats there as being a notional land transaction to Company P. P is connected with V.

If the land’s market value at the effective date is higher than the amount shown on the transfer, section 53 can bring the consideration up to market value.

If, however, the wider scheme includes amounts that are higher than market value, and the largest amount or aggregate amount for the scheme transactions exceeds market value, the manual says that higher figure is used as the chargeable consideration for the notional transaction.

If the original transfer was said to be a distribution of company assets, you would then need to consider whether the notional transaction keeps that character for section 54 purposes. On the manual’s example, that will depend on the facts, and P would need to be an immediate shareholder of V if the transaction is to retain its character as a distribution.

Why this can be difficult in practice

There are several fact-sensitive points.

• Section 75C itself is an anti-avoidance provision, so identifying the correct notional transaction can be complex.
• The connected persons test is statutory, but applying section 1122 CTA 2010 to real corporate structures is not always straightforward.
• The manual refers to the “largest amount, or the aggregate amount, for any of the scheme transactions”. Working out exactly which transactions count, and how amounts should be identified or aggregated, may require careful analysis of the whole arrangement.
• The section 54 exceptions are not automatic. You need to test whether the notional transaction falls within them.
• The idea that a notional transaction may retain the character of the original transfer is especially fact-sensitive. The manual does not say this always happens. It says it may happen depending on the facts.

The distribution example shows why this matters. A taxpayer may assume that once section 75C creates a notional transaction, the original legal character of the transfer is lost. The manual indicates that this is not necessarily right. But equally, character is not preserved automatically. The facts and the statutory conditions still matter.

Key takeaways

• Where section 75C creates a notional transaction and the purchaser company is connected with the vendor, section 53 can impose a market value basis for SDLT.
• The chargeable consideration may be more than market value if a larger amount, or aggregate amount, arises from the scheme transactions.
• You must also consider the section 54 exceptions, and the notional transaction may retain the character of the original transfer if the facts support that treatment.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Guidance on Connected Companies and Notional Transactions under Section 53 FA03

View all HMRC SDLT Guidance Pages Here