Understanding SDLT: Deemed Market Value in Property Transfer to Connected Company

SDLT market value rule for residential property transferred to a connected company

When an individual transfers residential property to a company, SDLT is not always worked out by reference to the price stated in the transfer. If the individual and the company are connected under section 1122 CTA 2010, section 53 can require SDLT to be charged on the property’s market value at the effective date instead. In this example, market value can increase the SDLT charge if it is higher than the price, but it does not reduce the charge below the amount actually paid.

• The first issue is whether the transferor and the company are connected for tax purposes under section 1122 CTA 2010.
• If the parties are not connected, SDLT is normally charged on the actual consideration paid, such as £170,000 in the example.
• If the parties are connected, SDLT may be charged on the market value of the residential property at the effective date of the transaction.
• Where market value is higher than the stated price, the higher market value can become the chargeable consideration for SDLT.
• Where market value is lower than the price actually paid, the SDLT charge is not reduced below the actual consideration in this example.
• In practice, both the connected parties test and the valuation evidence can be technical and may need careful legal and valuation review.

Scroll down for the full analysis.

When SDLT uses market value instead of the price: transfer of residential property to a connected company

This page explains a common SDLT issue: an individual transfers a residential property to a company for a stated price, but the tax may be charged on the property’s market value instead. The point matters because SDLT is not always based only on what the buyer actually pays. Where the parties are connected, special rules can substitute market value and increase the tax charge.

What this rule is about

The source material deals with the deemed market value rule in section 53. In broad terms, that rule can apply where residential property is transferred between connected parties. If it applies, SDLT may be calculated by reference to the market value of the property at the effective date of the transaction, rather than just the price written into the contract or transfer.

The example in the source concerns an individual transferring a freehold residential property to a company. The key legal question is whether the individual and the company are connected within the meaning of section 1122 of CTA 2010. If they are not connected, SDLT is normally based on the actual consideration paid. If they are connected, the market value rule may apply.

What the official source says

The official example starts with a transfer of freehold residential property by an individual, A, to company B for £170,000.

It then identifies two questions:

• Is A connected with B under section 1122 CTA 2010?
• If so, what is the market value of the property transferred?

The source says that if A is not connected with B, the chargeable consideration is the amount actually paid, £170,000, taxed at the rate applicable to residential property at the effective date.

If A is connected with B, section 53 applies and the chargeable consideration may instead be the market value of the property at the effective date. The example given is:

• if market value is £275,000, SDLT is charged on £275,000
• if market value is £150,000, SDLT is charged on £170,000

That shows the practical effect of the rule in this example: where section 53 applies, market value can replace the actual price if it is higher, but it does not reduce the chargeable consideration below the amount actually given.

What this means in practice

The practical message is simple but important. A low transfer price does not necessarily keep SDLT low when residential property is transferred to a connected company.

You need to test two things:

• whether the transferor and transferee are connected
• what the property was worth on the effective date

If there is no connection, the starting point in the example is straightforward: SDLT is based on the £170,000 actually paid.

If there is a connection, the transaction has to be tested against market value. If market value is higher than the price, SDLT can be charged on that higher amount. This prevents connected parties from reducing SDLT simply by agreeing a low price between themselves.

The source example also shows the opposite point. If market value is lower than the actual price, the tax is not reduced to that lower figure. In the example, where the company pays £170,000 for a property worth only £150,000, the chargeable consideration remains £170,000.

How to analyse it

A sensible way to approach this kind of transaction is:

• Identify the property interest being transferred. In the example, it is freehold residential property.
• Identify the actual consideration given. Here, that is £170,000.
• Check whether the parties are connected under section 1122 CTA 2010. This is a legal test and should not be assumed from informal family or business links alone.
• If the parties are connected, determine the market value of the property at the effective date of the transaction.
• Compare the market value with the actual consideration.
• For this type of case, if market value is higher, SDLT may be charged on market value; if market value is lower, the actual consideration remains the chargeable amount.

The effective date matters because market value is tested at that date, not at some earlier valuation date or a later date when the property market may have moved.

Example

Illustration: Ms A transfers a house to a company she controls for £170,000.

• If Ms A and the company are not connected for the relevant tax definition, SDLT is charged on £170,000.
• If they are connected and the house is worth £275,000 on the effective date, SDLT is charged on £275,000.
• If they are connected but the house is worth only £150,000, SDLT is still charged on £170,000.

This is the core point of the official example: in a connected-party residential transfer to a company, market value can increase the SDLT base, but in this example it does not reduce it below the actual price.

Why this can be difficult in practice

The source example is short, but two areas often need careful attention.

First, whether parties are connected can be technical. The source refers specifically to section 1122 CTA 2010. That is a statutory definition, not a general impression of whether the parties are closely related in everyday terms.

Second, market value can be disputed. The source assumes figures of £275,000 and £150,000, but real transactions may need evidence to support the valuation. The correct figure is the market value at the effective date, so timing and valuation methodology can matter.

A further practical point is that the source is an example page from HMRC’s SDLT manual. It illustrates HMRC’s view of how section 53 operates in this scenario, but the legislation remains the primary legal source. In any borderline case, the statutory wording and the facts of the transaction remain critical.

Key takeaways

• For a transfer of residential property to a company, SDLT may be based on market value rather than the stated price if the parties are connected.
• The first question is whether the parties are connected under section 1122 CTA 2010; the second is the property’s market value at the effective date.
• In the example given, market value increases the chargeable consideration if it is higher than the price, but does not reduce it below the amount actually paid.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding SDLT: Deemed Market Value in Property Transfer to Connected Company

View all HMRC SDLT Guidance Pages Here