Is LBTT or ADS payable when a property is transferred from a company to its sole shareholder for no consideration?

Introduction

People often search for this issue where a property is held in a company and the owner wants to move it into personal ownership without paying money for it. The key questions are usually whether Land and Buildings Transaction Tax (LBTT) is charged on market value, and whether the Additional Dwelling Supplement (ADS) can still apply if the individual already owns another home.

In Scotland, the answer depends first on what counts as chargeable consideration. A transfer for no consideration is not automatically taxable just because the parties are connected. It is also important to check whether any mortgage or other debt is being taken over, because that can create chargeable consideration even where no cash changes hands.

The Question

A common scenario is this:

• A residential property is owned by a company.
• The company is controlled by one individual, who is the sole director and shareholder.
• The property is to be transferred from the company into that individual’s personal name.
• No money is to be paid for the transfer.
• The individual may already own another dwelling, raising a possible ADS question.

The issue is whether LBTT is payable on the market value of the property, and whether ADS can apply even though the transfer is said to be for no consideration.

Nick’s Explanation

Nick’s core view was that, where there is genuinely no consideration, the transfer should normally avoid both LBTT and ADS. In anonymised form, his reasoning was:

“If there is no consideration the transfer should avoid LBTT and ADS because: (i) a transfer for no consideration is exempt under Schedule 1 paragraph 1 of the 2013 Act; (ii) the deemed market value rule in section 22 does not apply where the buyer is an individual; and (iii) ADS only starts if the consideration exceeds £40,000, which it does not unless the buyer takes over the mortgage.”

That is a concise and generally correct way to approach this type of transfer. The practical warning is that “no consideration” must be tested carefully. If the individual assumes liability for an existing mortgage or other secured debt, that assumed debt can count as consideration for LBTT and ADS purposes.

The Law

The relevant legislation is the Land and Buildings Transaction Tax (Scotland) Act 2013.

The main provisions are as follows.

• Schedule 1 paragraph 1: LBTT is not chargeable on a land transaction if there is no chargeable consideration, subject to the legislation as a whole.
• Section 22: in certain transactions involving connected persons, the chargeable consideration is deemed to be the market value of the subject matter. However, that market value rule is not universal and does not apply in every connected-party case.
• Schedule 2A: this contains the rules for the Additional Dwelling Supplement.
• For ADS, one of the threshold conditions is that the chargeable consideration attributable to the dwelling is more than £40,000.

In broad terms, LBTT is charged by reference to chargeable consideration, not simply by reference to the fact that land changes hands. In some connected-party cases the legislation substitutes market value, but the scope of that substitution matters. Where the buyer is an individual acquiring from a connected company for no consideration, the market value rule does not automatically step in merely because the parties are connected.

For ADS, the supplement applies only if the statutory conditions are met. One of those conditions is that the relevant consideration exceeds £40,000. If there is no chargeable consideration at all, ADS will usually not arise.

Analysis

Step 1 is to identify the buyer and seller.

Here, the seller is the company and the buyer is the individual shareholder. They are connected persons, but that alone does not mean LBTT is charged on market value.

Step 2 is to ask whether there is chargeable consideration.

If the property is transferred for no payment and the individual does not take on any mortgage or other debt, there is usually no chargeable consideration. In that case, Schedule 1 paragraph 1 points strongly against any LBTT charge.

Step 3 is to test whether section 22 substitutes market value.

This is the point that often causes confusion because many readers are familiar with rules applying to transfers into companies. But the connected-party market value rule does not apply in the same way where the buyer is an individual. On the facts described, section 22 does not generally impose LBTT on the property’s market value just because the transfer is from a company to its sole shareholder.

Step 4 is to check for debt assumption.

This is the main exception in practice. If the company’s property is subject to a mortgage and the individual takes over responsibility for that mortgage, the amount of debt assumed can count as consideration. If that happens:

• LBTT may become payable on the amount treated as consideration.
• ADS may also need to be considered if the dwelling conditions are met and the consideration attributable to the dwelling exceeds £40,000.

Step 5 is to apply the ADS rules.

If there is no chargeable consideration, ADS should not apply. If there is chargeable consideration because debt is assumed, the next questions are whether the property is a dwelling, whether the buyer will own more than one dwelling at the end of the day of the transaction, and whether the consideration attributable to the dwelling exceeds £40,000.

Step 6 is to avoid over-reliance on “unsuitable for use” arguments.

In some cases people ask whether ADS can be avoided because a property is derelict or uninhabitable. That argument is now harder to run successfully. The condition thresholds are now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. A property will not escape dwelling treatment merely because it needs repair or renovation. The defects usually need to be much more serious before the property is regarded as not suitable for use as a dwelling.

Other legitimate ADS issues can arise in mixed-use transactions, land with genuine non-residential elements, or acquisitions of six or more dwellings in a linked transaction. But those are separate routes and do not alter the basic analysis for a simple company-to-individual transfer for no consideration.

Outcome

On the general facts described, a transfer of a dwelling from a company to its sole shareholder for no consideration should normally not give rise to LBTT or ADS.

That conclusion depends on there being no chargeable consideration. If the individual assumes a mortgage or any other debt secured on the property, the tax position can change materially.

Practical Steps

Before completing the transfer, a reader should work through the following points:

• Confirm whether any money, debt, or other value is being given in return for the transfer.
• Check whether the property is subject to a mortgage, standard security, director’s loan arrangement, or any other liability that the individual will assume.
• Identify the amount of any assumed debt, because that may be the relevant consideration for LBTT and ADS.
• Check whether the buyer will own more than one dwelling at the end of the effective date if there is chargeable consideration.
• Consider whether any part of the transaction is genuinely mixed-use or involves non-residential land, rather than assuming ADS applies automatically.
• Do not assume that a poor condition property is outside ADS merely because it needs works; the threshold for “not suitable for use as a dwelling” is now relatively high after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.
• Ensure the LBTT return, if one is required, reflects the actual legal and financial structure of the transaction.

Conclusion

If a company transfers a dwelling to its sole shareholder for genuinely no consideration, LBTT and ADS will usually not be payable. The critical issue is whether any mortgage or other debt is being taken over. If it is, that assumed liability may create chargeable consideration and bring both LBTT and ADS back into play.

Legal References Used

• Land and Buildings Transaction Tax (Scotland) Act 2013
• Land and Buildings Transaction Tax (Scotland) Act 2013, Schedule 1 paragraph 1
• Land and Buildings Transaction Tax (Scotland) Act 2013, section 22
• Land and Buildings Transaction Tax (Scotland) Act 2013, Schedule 2A
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

See all questions and answers categorized in this sitemap. Or use Google site search below.