Can a company taking the keys and doing works make an earlier SDLT effective date?

Introduction

People often ask whether Stamp Duty Land Tax (SDLT) can arise before legal completion, especially where a property is being transferred to a connected company and the company has already been given access to the property. The issue usually matters because SDLT rates can change, and an earlier effective date may affect which rate applies.

The key concept is “substantial performance”. In some cases, SDLT is triggered before completion if the purchaser has paid substantial consideration or has taken possession of the whole, or substantially the whole, of the property. But this is a legal and factual question, and simply having keys or carrying out works does not automatically settle it.

The Question

A property owner planned to sell a residential property personally owned by them to a company they controlled. The property was mortgaged in the owner’s name and would be refinanced with a buy-to-let mortgage in the company’s name on completion.

Before exchange and completion, the company had already been given the keys and had started renovation or improvement works. The owner wanted to know:

• whether the transaction had already been “substantially performed” for SDLT purposes;
• whether that meant the effective date was earlier than completion;
• which SDLT return form the conveyancer would need to file; and
• whether using an earlier effective date could create problems where mortgage funding was still involved.

Nick’s Explanation

Nick’s core point was that the SDLT effective date is not always the same as the legal completion date. He explained that the relevant question is whether the contract has been “substantially performed”.

In anonymised form, his reasoning was:

“If the purchaser has taken possession of the property, section 44(5)(a) of the Finance Act 2003 becomes relevant. On that basis, it is arguable that the effective date was when possession was taken and renovation works began.”

He also noted that the SDLT return is generally made on form SDLT1, and that if a taxpayer chooses an earlier effective date, the filing position and any late filing consequences need to be considered carefully.

Importantly, Nick described the point as arguable rather than automatic. That is the right way to view cases like this. The mere fact that a connected company has keys and is doing works does not by itself guarantee that HMRC would accept substantial performance. The legal effect depends on what rights were actually granted under the contract and whether the company truly took possession of the whole, or substantially the whole, of the property as purchaser.

The Law

The main rule is in section 44 of the Finance Act 2003. Broadly:

• Where there is a contract for a land transaction that is later completed by a transfer, SDLT usually treats the contract and completion in a particular way.
• If the contract is “substantially performed” before completion, the effective date for SDLT is the date of substantial performance.
• If there is no substantial performance before completion, the effective date is usually the completion date.

Section 44(5)(a) Finance Act 2003 provides that a contract is substantially performed when:

“the purchaser, or a person connected with the purchaser, takes possession of the whole, or substantially the whole, of the subject-matter of the contract.”

Substantial performance can also occur if a substantial amount of the consideration is paid before completion.

The SDLT return is normally made using SDLT1. The return must state the effective date of the transaction. Filing deadlines and any penalties run by reference to that effective date.

Where the buyer is a company acquiring a dwelling, the higher rates and connected-party market value rules may also need to be considered, depending on the facts and the timing of the transaction.

Analysis

The analysis usually has to be done in stages.

First, there needs to be a contract. Substantial performance under section 44 assumes there is a contract capable of being substantially performed. If parties have not yet exchanged contracts, that may be a major obstacle. Access to a property before exchange is not the same thing as a purchaser being in possession under a contract for SDLT purposes.

Second, it is necessary to ask what exactly happened when the company received the keys. There is a difference between:

• a licence to enter for limited purposes, such as inspection, measuring up, or carrying out agreed works; and
• possession of the whole, or substantially the whole, of the property as purchaser.

If the company was merely allowed in to do preparatory works, under the owner’s continuing control, that may fall short of substantial performance. If, however, the company was effectively let into possession and had practical control of the property in a way consistent with ownership under the contract, the argument becomes stronger.

Third, the mortgage position matters in practice, even if it does not itself decide the SDLT issue. Where the seller still has a mortgage and the buyer’s lender expects completion to coincide with drawdown and transfer, an asserted earlier effective date can create practical and evidential difficulties. Conveyancers are often cautious where the SDLT analysis appears to run ahead of the legal and lending structure.

Fourth, the timing point must be handled carefully where a taxpayer is trying to secure an earlier SDLT rate. If the earlier date is legally correct because the contract was substantially performed, that is the date that should be used. But it cannot simply be chosen because it produces a lower rate. HMRC would expect the facts and documents to support the position.

Fifth, if the earlier date is used, the SDLT filing deadline runs from that earlier effective date. That can mean the return is already late by the time legal completion occurs, with penalties and interest potentially arising.

In a connected-party sale to a company, there is also a wider point. Even if the effective date is earlier, the transaction still needs to be reported correctly by reference to the SDLT rules that apply to company purchases of dwellings, including any market value treatment where relevant.

Outcome

An earlier SDLT effective date is possible in principle, but only if the legal test for substantial performance is actually met. In a case where the company merely has keys and is carrying out works before exchange, the position is not clear-cut.

If there was no exchanged contract at the relevant time, it is much harder to say that section 44 substantial performance had already occurred. If there was a contract and the company truly took possession of the whole, or substantially the whole, of the property under that contract, then an earlier effective date may be arguable.

The SDLT return would ordinarily be made on SDLT1. If an earlier effective date is used, the filing deadline and any late filing consequences must be calculated from that earlier date, not from completion.

Practical Steps

Anyone assessing this issue should work through the following points:

• Check whether a binding contract had actually been entered into at the time the buyer received the keys.
• Review the contract, side letters, emails and any licence or access arrangements to see what rights were granted.
• Identify whether the buyer had genuine possession of the property, or only limited access for works.
• Confirm whether any substantial part of the consideration had already been paid.
• Check the SDLT rate in force on the possible effective date and whether higher rates or market value rules apply.
• Calculate the SDLT filing deadline from the effective date that is said to apply.
• Discuss the position with the conveyancer and mortgage advisers, because the SDLT analysis may not align neatly with lender requirements.
• Keep a clear documentary record showing why the chosen effective date is legally correct.

Conclusion

Giving a company the keys and allowing it to carry out works can support an argument about substantial performance, but it does not automatically create an earlier SDLT effective date. The decisive questions are whether there was a relevant contract in place and whether the buyer truly took possession of the whole, or substantially the whole, of the property under that contract. In many cases, especially where exchange has not yet happened, the argument will be uncertain and should be tested carefully against the legislation and the transaction documents.

Legal References Used

• Finance Act 2003, section 44
• Finance Act 2003, section 44(5)(a)
• HMRC Stamp Duty Land Tax Manual, SDLTM07900
• SDLT1 return and HMRC guidance for completing SDLT returns

This page was last updated on 22 March 2026.

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