SDLT Implications of Lease Transfer Between Connected Companies: Example Analysis

SDLT on a New Lease Granted to a Connected Company

When an individual grants a new residential lease to a company and the company releases a debt instead of paying cash, SDLT depends mainly on whether the parties are connected. If they are not connected, SDLT on the premium element is usually based on the debt released. If they are connected, section 53 can substitute the market value of the lease interest transferred instead. Any rent under the lease must also be checked separately, as SDLT may be due on the net present value of that rent.

• If the parties are not connected, the chargeable consideration is normally the amount of debt released, such as £170,000 in the example.
• If the parties are connected under section 1122, SDLT is based on the market value of the lease interest transferred at the effective date, not the debt figure.
• Using market value can increase or reduce the SDLT charge, depending on whether that value is higher or lower than the debt released.
• Rent is a separate SDLT element and may create an additional charge based on its net present value above the relevant threshold.
• The key practical questions are whether the parties are connected, what exact interest is being granted, its market value at the effective date, and what rent is payable.

Scroll down for the full analysis.

SDLT on granting a lease to a connected company: debt release, market value, and rent

This page explains how Stamp Duty Land Tax can work where an individual grants a new residential lease to a company and, in return, the company releases a debt owed by that individual. The key issue is whether the individual and the company are connected. That matters because it can change the amount on which SDLT is charged.

What this rule is about

The source material deals with a specific SDLT problem: a new lease is granted, the tenant is a company, and the landlord receives consideration not in cash but through the release of an existing debt. In a normal transaction, SDLT is usually based on the chargeable consideration actually given. But where the parties are connected, special market value rules may apply.

This matters because a connected-party transaction can be taxed by reference to the market value of the property interest transferred, rather than the amount of debt released. For a lease, you also need to consider any rent payable under the lease, because rent can create a separate SDLT charge based on its net present value.

What the official source says

The example in the HMRC manual involves these facts:

• Individual A grants a new lease of residential property to company B.
• The consideration is the release of a debt of £170,000 owed by A.
• You must ask whether A is connected with B under section 1122.
• You must also identify the market value of the property transferred and the rent payable under the lease.

If A is not connected with B, the chargeable consideration is the value of the debt released, which is £170,000, using the residential rates applicable at the effective date of the transaction. In addition, there may be SDLT at 1% on the net present value of the rent, to the extent it exceeds the relevant threshold.

If A is connected with B, section 53 applies. In that case, the chargeable consideration for the grant of the lease is the market value of the property interest transferred at the effective date, not the amount of the debt released. The manual gives two illustrations:

• if market value is £275,000, that is the chargeable amount, plus any SDLT due at 1% on the net present value of the rent above the threshold;
• if market value is only £150,000, the chargeable consideration is limited to £150,000.

What this means in practice

The practical point is that connected-party status can increase or reduce the SDLT charge compared with the actual debt released.

If the parties are not connected, the debt release is treated as the relevant consideration for the premium element of the lease transaction. On the facts given, that is £170,000.

If the parties are connected, the legislation substitutes market value for the actual consideration. That means the tax calculation no longer follows the debt figure. Instead, it follows the market value of the lease interest being granted at the effective date.

This can produce different outcomes:

• if market value is higher than the debt released, SDLT is based on the higher figure;
• if market value is lower than the debt released, SDLT is based on the lower figure.

The rent is a separate part of the analysis. Even where the premium element is taxed by reference to debt released or market value, you still need to check whether rent is payable under the lease and, if so, whether SDLT is due on the net present value of that rent.

How to analyse it

A sensible way to approach this type of case is:

1. Identify the land transaction. Here, it is the grant of a new lease of residential property.
2. Identify all forms of consideration. In the example, the main non-rent consideration is the release of a debt of £170,000.
3. Ask whether the grantor and the company are connected under section 1122. The manual treats this as the gateway question for the market value rule.
4. If they are not connected, use the actual chargeable consideration, here the debt released.
5. If they are connected, apply section 53 and determine the market value of the property interest transferred at the effective date.
6. In either case, check the rent payable under the lease and calculate any SDLT due on the net present value of that rent.
7. Use the rates applicable at the effective date of the transaction.

The most important factual questions are usually:

• Are the parties connected for SDLT purposes?
• What exactly is the property interest transferred?
• What is its market value at the effective date?
• What rent is payable under the lease?

Example

Illustration: an individual grants a new residential lease to a company. The company agrees to release a debt of £170,000 owed by the individual, and rent is also payable under the lease.

If the individual is not connected with the company, the premium element is £170,000. You then separately test whether SDLT is due on the net present value of the rent.

If the individual is connected with the company and the market value of the lease interest transferred is £275,000, the premium element becomes £275,000 instead of £170,000. Rent is still considered separately.

If the individual is connected with the company but the market value is only £150,000, the premium element is £150,000, even though the debt released was £170,000.

Why this can be difficult in practice

The manual example is short, but the real difficulty is often not the arithmetic. It is the legal and valuation analysis behind it.

First, connected-party status can be easy to overlook, especially where the company is controlled indirectly or through family arrangements. The example assumes that section 1122 is the relevant test, but whether parties are connected is always fact-sensitive.

Second, the market value exercise is not simply a guess at what the whole property is worth. The source refers to the market value of the property transferred. In a lease case, that means careful attention to the actual interest granted and the timing of the valuation.

Third, lease transactions often have two SDLT components running side by side:

• the premium or other non-rent consideration; and
• the rent, taxed by reference to net present value.

It is easy to focus on the debt release or market value point and miss the separate rent calculation.

Finally, the example is about residential property and refers to the residential rate applicable at the effective date. That means the timing and classification of the property remain important parts of the analysis.

Key takeaways

• Where a new lease is granted and the consideration is debt release, SDLT normally starts with the amount of debt released.
• If the grantor and the company are connected, section 53 can replace actual consideration with market value.
• Rent under the lease must still be considered separately, because SDLT may also be due on its net present value.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: SDLT Implications of Lease Transfer Between Connected Companies: Example Analysis

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