Read the original guidance here:
HMRC SDLT: SDLTM30223 – Application: Transfer to a connected company: Example 3

Understanding SDLT in Property Transfers between Connected Companies

This article explains the process and considerations for Stamp Duty Land Tax (SDLT) when a company transfers property to another company, especially when they are connected. We will use Example 3 to illustrate key points.

Example 3: The Transfer of Property

In this example, Company C transfers a freehold residential property to Company B without receiving any payment (known as ‘no consideration’). It is important to determine whether SDLT needs to be paid and how much.

Key Considerations for SDLT

When evaluating the SDLT implications for the property transfer from Company C to Company B, consider two main questions:

• Are Companies C and B considered connected under Section 1122 of the Corporation Tax Act 2010?
• If they are connected, what is the market value of the property transferred?

Understanding Connection Between Companies

For SDLT purposes, two companies are regarded as connected if certain criteria are met as specified in Section 1122 of the Corporation Tax Act 2010. A connection generally indicates a significant level of control or ownership between the two companies. Here are some examples of who is considered connected:

• One company owns more than 50% of the shares in the other.
• Both companies are under common control by a third company or individual.
• Directors or shareholders have substantial overlap between the two companies.

No Chargeable Consideration If Not Connected

If it turns out that Companies C and B are not connected, then no SDLT is due. In this situation:

• There would be no chargeable consideration since the transfer occurred without payment.
• No notification to HMRC is needed.

Chargeable Consideration If Connected

If Companies C and B are indeed connected, Section 53 of the Finance Act will apply. In this case, the SDLT liability is based on the market value of the property at the time of transfer. Here’s how it works:

• The chargeable consideration is considered the market value of the transferred property on the effective date of the transaction.
• For example, if the market value of the property is assessed at £275,000, then this amount would be the chargeable consideration for SDLT purposes.

Effective Date of the Transaction

Understanding the effective date is essential for determining the amount of SDLT owed. The effective date is usually the date when the transfer of property is completed, often referred to as the ‘date of completion’. Make sure to document this date accurately to avoid issues with HMRC.

Importance of Market Value Assessment

Determining the market value of the property is crucial when SDLT is applicable. The market value should reflect what the property would reasonably sell for in the open market. Various methods to determine market value include:

• Professional valuations from chartered surveyors.
• Comparative sales data from similar properties in the area.
• Valuation tools provided by estate agents or property platforms.

Reporting and Paying SDLT

If chargeable consideration is applicable due to the connection between the companies, you need to report the transaction to HMRC. This usually involves the following steps:

• Complete an SDLT return.
• Calculate the SDLT owed based on the chargeable consideration.
• Pay the SDLT within the required timeframe, typically within 14 days after the effective date.

Additional Notes About SDLT and Company Transfers

It’s also worth noting that the rules surrounding SDLT can change. Therefore, it is advisable to stay updated with current legislation and consider seeking professional advice if unsure. Make sure to keep written records of valuations, property details, and transactions to support your claims in case of an enquiry by HMRC.

Consequences of Non-Compliance

Failing to report or pay SDLT correctly can have serious consequences. Some potential issues include:

• Financial penalties from HMRC.
• Increased interest charges on unpaid amounts.
• Possible legal actions for failure to comply with tax obligations.

Understanding your responsibilities when transferring property between connected companies is fundamental. By paying attention to connection criteria and assessing market values accurately, you can ensure compliance with SDLT rules.