Can you create leases and transfer a freehold to your own company without SDLT or CGT?

Introduction

Owners of converted properties often ask whether they can split a building into leasehold flats, move the freehold into a company they control, and refinance, all without triggering tax charges. The question usually arises where a lender wants the freehold and leaseholds to be held separately.

The difficulty is that what may look like a simple title rearrangement can involve several separate land transactions for tax purposes. In particular, Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT) do not always follow the commercial logic of the arrangement. Transfers to a connected company are especially sensitive because market value rules can apply even where little or no money changes hands.

The Question

A married couple own a rental property in their personal names. The property has been converted into three self-contained flats and the owners now want to refinance. The proposed lender requires a separation between the freehold and the leasehold interests.

The owners are considering a structure under which:

• three long leases are created for the flats;
• the freehold is transferred to a newly formed management company they control; and
• the refinancing completes at the same time.

They have received conflicting suggestions, including inter-spouse transfers, nominal-value leases, trust arrangements, and same-day transfers into a company. Their main concern is whether the structure can be implemented with nil or minimal SDLT and CGT.

Nick’s Explanation

Nick’s core view was that the tax problem comes from the interaction between lease creation, company transfers and market value rules.

In summary, his explanation was:

• the grant of a lease is itself a land transaction for SDLT purposes;
• transferring the freehold into a company connected with the owners brings in a market value rule for SDLT;
• granting leases at a nominal figure such as £1 may reduce immediate SDLT, but can create a future CGT problem if those leasehold interests are later disposed of at full value; and
• if the freehold must end up in a company owned by the same people, SDLT on the market value of that freehold interest is generally very hard to avoid.

Nick’s practical conclusion was that the simplest SDLT position is usually to keep the freehold in the owners’ personal names and create the leases from there. If the lender insists on the freehold being placed in a company, the SDLT market value rule is likely to apply to that freehold transfer, even if the freehold value is reduced because long leases have already been granted.

The Law

SDLT is charged on land transactions under the Finance Act 2003. The starting point here is that the grant of a lease counts as a land transaction. That follows from section 43 FA 2003.

Where a lease is granted for little or no premium, the SDLT charge may be low or nil, depending on the facts, but that does not mean the transaction is ignored. It remains a land transaction and has to be analysed under the legislation.

A separate issue arises where land is transferred to a company connected with the transferor. Under section 53 FA 2003, the chargeable consideration is treated as the market value of the subject matter of the transaction. In practice, this means that a transfer of a freehold to a company owned by the same individuals is not tested by reference to the nominal price written into the transfer. SDLT is instead charged by reference to market value.

CGT is a different tax with different rules. A structure that appears to reduce SDLT by creating leasehold interests at a nominal figure does not necessarily produce a good CGT result. If a valuable lease is effectively created at negligible base cost and later sold or otherwise disposed of, the gain can be substantial.

Transfers between spouses can sometimes take place on a no gain/no loss basis for CGT, but that does not solve the separate SDLT analysis for later transfers into a connected company. Likewise, trust arrangements may alter the legal steps, but they do not usually remove the underlying SDLT issue if the end result is that the freehold is transferred to a connected company.

Analysis

The position can be broken down into stages.

1. Creating the leases

   If the owners grant long leases out of the freehold, each lease grant is a land transaction. Where the leases are granted at nominal consideration, the immediate SDLT effect may be limited. However, that does not mean the leases can be ignored for tax planning purposes, especially if they are intended to carry real market value in the future.

2. Transferring the freehold to a company

   Once the freehold is transferred to a company controlled by the owners, section 53 FA 2003 is the major obstacle. The company is connected with the transferors, so SDLT is charged on market value, not on the nominal amount paid. This is the main reason why many same-day restructuring ideas fail to eliminate SDLT.

3. Does granting the leases first help?

   It may help reduce the value of what is later transferred. A freehold subject to long leases is often worth much less than an unencumbered freehold. So, if the leases are genuinely created first, the market value of the remaining freehold interest may be lower. But lower is not the same as nil. SDLT can still apply to that reduced market value.

4. Do inter-spouse steps help?

   Usually not in any meaningful SDLT sense if the final destination is a connected company. Additional steps between spouses may add complexity, professional cost and execution risk without removing the eventual market value charge on the company transfer.

5. Does a trust arrangement avoid the problem?

   Generally, no. A trust may alter the legal route, but if the freehold is ultimately moved into a company connected with the same individuals, the market value rule remains a serious issue. It may defer the SDLT point or reframe the steps, but it does not usually eliminate it.

6. What about CGT on £1 leases?

   This is where some apparently attractive SDLT planning can become unattractive overall. If long leases are created for a nominal amount and later sold or transferred at full market value, the leaseholders may face a large chargeable gain because their base cost is very low. So a structure should not be judged on SDLT alone.

The practical tax question is therefore not whether a sequence of same-day steps can be written into transfer documents, but whether the legislation looks through those steps and taxes the connected-company transfer by reference to market value. In most cases of this kind, it does.

This is also a reminder that tax treatment depends on the legal interests actually created. The order of steps, the terms of the leases, the valuation of the reversion, any mortgage debt taken on, and the lender’s exact requirements all matter.

Outcome

The main practical conclusion is this:

• if the freehold stays in the owners’ joint personal names and the leases are created from there, the SDLT position is usually simpler and potentially cheaper;
• if the freehold must be transferred to a company owned by the same people, SDLT on the market value of that freehold interest is likely to apply under section 53 FA 2003; and
• structures based on nominal-value leases may reduce immediate SDLT but can create significant future CGT exposure.

So the likely answer is that nil SDLT is difficult to achieve if the lender requires the freehold to be placed into the owners’ own company. The best that may be achievable is to ensure that the freehold value transferred is genuinely reduced because long leases have already been granted, while also checking the long-term CGT consequences.

Practical Steps

If you are assessing a similar arrangement, the sensible next steps are:

1. Confirm the lender’s exact requirement in writing

   Some lenders require separate titles, while others specifically require separate ownership. Those are not the same thing. If separate titles alone are enough, the tax outcome may be much better.

2. Obtain a valuation of the freehold reversion after lease creation

   If the freehold is to be transferred to a connected company, SDLT is likely to be based on market value. A proper valuation is therefore essential.

3. Model SDLT and CGT together

   Do not assess the structure by SDLT alone. A plan that looks efficient now may create a larger CGT problem later.

4. Check the exact lease terms

   The premium, ground rent, lease length and rights granted can all affect value and tax analysis.

5. Review mortgage debt assumptions carefully

   Debt taken on by a company or released from individuals can affect the SDLT analysis and should be reviewed alongside the transfer documentation.

6. Get coordinated advice from a property solicitor and a tax adviser

   This kind of restructuring is document-sensitive. The legal steps, tax consequences and lender conditions all need to align.

Conclusion

Where a couple own a converted property personally and want to grant leases and move the freehold into their own company, the key obstacle is the SDLT market value rule for connected-company transfers. Granting leases first may reduce the value of the freehold reversion, but it will not usually remove SDLT altogether. Any plan using nominal-value leases should also be tested carefully for future CGT consequences.

Legal References Used

• Finance Act 2003, section 43
• Finance Act 2003, section 53

This page was last updated on 22 March 2026.

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