Understanding SDLT Higher Rate for Non-Natural Persons with 10% Company Share

When an employee or partner is treated as having a 10% or greater share for SDLT

For SDLT higher-rate reliefs involving certain companies, an employee or partner can be treated as having a 10% or greater share in a company even if they do not directly own 10% of the shares. The test is wide and looks at share capital, voting rights, rights to income or assets, rights held indirectly or through others, rights to acquire interests later, and practical control of the company. If the test is met, the relief may not be available where the company is entitled to a single-dwelling interest.

• The rule is not limited to ordinary share ownership: it also covers 10% or more of issued share capital, voting power, income distributions, or rights to company assets on a winding up.
• A person may be caught if they hold rights directly, indirectly, or are entitled to acquire them later, for example under an option or similar arrangement.
• Rights can be attributed from nominees, persons acting on someone’s behalf or direction, controlled companies, and associates.
• People are not treated as associates just because they are members of the same partnership, although they may still be associates for another reason.
• Even if no formal 10% threshold is met, someone can still be treated as having a 10% or greater share if they exercise or can obtain direct or indirect control over the company’s affairs.
• In practice, you must review the wider facts, including share classes, shareholder agreements, family or connected-person holdings, and other control arrangements, not just the company’s share register.

Scroll down for the full analysis.

When an employee or partner is treated as having a 10% or greater share in a company for SDLT purposes

This page explains a technical SDLT test that matters for the higher-rate rules affecting certain non-natural persons, such as companies. The issue is whether an employee or partner is treated as holding a 10% or greater share in a company that is entitled to a single-dwelling interest. If that threshold is met, a relief may be unavailable. The test is deliberately broad. It looks not just at shares held directly, but also at voting rights, rights to income or assets, rights held through others, and practical control.

What this rule is about

The source material deals with a gateway condition for relief within the SDLT rules on the higher rate for acquisitions of residential property by certain non-natural persons. In this context, the question is not simply whether a person owns 10% of the ordinary shares in the company.

Instead, the legislation uses a wide concept of having a 10% or greater share in the company. The purpose is to stop the rule being avoided by using different classes of shares, indirect holdings, nominee arrangements, connected persons, or control rights that fall short of straightforward legal ownership.

The practical consequence is important: if an employee or partner is treated as having more than the permitted level of interest in the company, relief will not be available where the company is entitled to a single-dwelling interest.

What the official source says

The HMRC manual says the definition of a 10% or greater share in a company is derived from section 147 of Finance Act 2013. It says relief will not be available where an employee or partner holds more than 10% of a company that is entitled to a single-dwelling interest.

When applying the test, the legislation requires a broad approach. A person is treated as crossing the threshold if they directly or indirectly possess, or are entitled to acquire, any of the following:

• 10% or more of the share capital of the company
• 10% or more of the issued share capital of the company
• 10% or more of the voting power in the company
• a right to 10% or more of distributions, assuming the whole of the company’s income were distributed among the participators
• rights that would entitle them, on a winding up or in other circumstances, to more than 10% of the company’s assets available for distribution among participators

The source also says that rights can be attributed to the employee or partner. In other words, the law may treat rights held by someone else as if they were held by that person. This includes rights:

• held by another person on their behalf
• held by another person who may be required to exercise them on their direction or behalf
• held by a company controlled by that person, or by that person together with associates
• held by their associates

For this purpose, “associates” is defined by corporation tax legislation. However, the manual makes one important qualification: two people are not treated as associates merely because they are members of the same partnership. If they are associates for some other reason, that still counts.

Finally, even if the specific 10% tests above are not met, a person is still treated as having a 10% or greater share if they exercise, are able to exercise, or are entitled to acquire direct or indirect control over the company’s affairs.

What this means in practice

This is an anti-fragmentation and anti-avoidance style test. You cannot safely look only at the company’s register of members and ask whether the employee or partner owns 10% of the shares.

You also need to consider:

• whether they hold voting rights that reach the threshold even if their economic share does not
• whether they are entitled to 10% or more of income distributions through a special share class or other rights
• whether they could receive more than 10% of the assets on a winding up
• whether they have options or other rights to acquire such interests
• whether rights held by nominees, relatives, controlled companies, or other associates must be attributed to them
• whether they effectively control the company even without a formal 10% shareholding

In practice, this means the analysis often goes beyond basic share ownership and into the company’s constitutional documents, shareholder agreements, partnership relationships, and connected-person arrangements.

The reference to a company being “entitled to a single-dwelling interest” matters because the rule is tied to the company’s interest in a dwelling. The source material does not set out the full meaning of that phrase, but the point here is that the 10% test affects whether the relevant relief is available in that wider SDLT regime.

How to analyse it

A sensible way to approach this issue is to work through the possible routes by which the 10% threshold might be met.

Start with direct legal ownership:

• Does the employee or partner own 10% or more of the share capital?
• Do they own 10% or more of the issued share capital?
• Do they hold 10% or more of the voting power?

Then move to economic rights:

• If the company distributed all its income among participators, would that person be entitled to 10% or more?
• On a winding up, or in another distribution scenario, would they be entitled to more than 10% of the assets available for distribution?

Then consider future and indirect rights:

• Are they entitled to acquire any of these rights later, for example under an option or similar arrangement?
• Do they hold rights indirectly rather than in their own name?

Then apply attribution rules:

• Are rights held by someone else on their behalf?
• Can another person be required to exercise rights on their direction?
• Are rights held through a company they control, alone or with associates?
• Are rights held by associates that must be attributed to them?

Finally, ask the control question:

• Even if none of the percentage tests is clearly met, do they in reality exercise, or have the ability or entitlement to acquire, direct or indirect control over the company’s affairs?

If the answer to any one of these routes is yes, the person may be treated as having a 10% or greater share for this SDLT purpose.

Example

Illustration: A company is acquiring a dwelling. One of its senior employees holds only 8% of the issued ordinary shares in their own name. On that fact alone, it may look as though the 10% threshold is not met.

But suppose that employee’s spouse holds a further 4%, or a family company controlled by the employee holds additional rights, or the employee has an option to acquire more shares, or special rights give the employee more than 10% of voting power or rights to distributions. In those cases, the employee may still be treated as having a 10% or greater share once attribution and indirect rights are taken into account.

The result could be that the company does not qualify for the relief in question, even though the employee’s direct registered shareholding is below 10%.

Why this can be difficult in practice

The difficulty is that the test combines several different concepts: legal ownership, beneficial entitlement, voting power, rights to income, rights to capital, attribution from associates, and practical control. These do not always point in the same direction.

Some common areas of difficulty are:

• different classes of shares carrying different rights to votes, income, and capital
• option arrangements or conditional rights that may amount to an entitlement to acquire
• deciding whether another person holds rights on someone’s behalf or under their direction
• working out whether a person is an associate for these purposes
• distinguishing partnership membership alone from other relationships that make partners associates
• judging whether someone has direct or indirect control over the company’s affairs even without a clear 10% holding

The manual also refers to “participators” using the close company rules. That is a technical corporation tax concept. In straightforward cases, it broadly points to those who have a share or interest in the company’s income or assets, but the exact scope can matter in more complex structures.

Because the rule is framed broadly, arrangements that appear to keep a person below 10% on paper may still be caught if the wider facts show economic entitlement or control.

Key takeaways

• The 10% test is wider than simple share ownership and includes voting, income, capital, indirect rights, and rights to acquire.
• Rights held by nominees, controlled companies, or associates may be attributed to the employee or partner.
• Even without meeting a formal percentage test, practical control over the company’s affairs can still cause the person to be treated as having a 10% or greater share.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding SDLT Higher Rate for Non-Natural Persons with 10% Company Share

View all HMRC SDLT Guidance Pages Here