Do you pay higher SDLT when buying a parent’s house below market value and keeping your current home?

Introduction

A common question in family property transactions is whether Stamp Duty Land Tax (SDLT) is charged on the discounted price actually paid or on the property’s full market value. The issue often matters most where a couple buy a relative’s home at an undervalue and decide to keep their existing home as a rental property.

In that situation, there are usually two separate SDLT questions. First, what amount is SDLT calculated on? Second, do the higher rates for additional dwellings apply? The answer depends on the legislation in Finance Act 2003 and, in most ordinary family purchases by individuals, the discounted purchase price is still the starting point. But keeping the old home often triggers the higher rates.

The Question

A couple plan to buy a family member’s house for less than its market value. The property is worth substantially more than the agreed purchase price. They also intend to keep their current home rather than sell it, and rent that existing property out after the purchase completes.

They want to know whether they will have to pay more SDLT than under the normal residential rates, and whether SDLT will be based on the lower agreed price or the higher market value.

Nick’s Explanation

Nick’s explanation was that the key SDLT charge is normally based on the chargeable consideration actually given for the property. In an ordinary purchase by individuals from relatives, the legislation does not usually replace the agreed price with market value simply because the sale is between connected persons.

He explained the position in substance as follows:

“SDLT is charged on the consideration given for the transaction. In this type of family purchase, the market value rule does not normally apply just because the sellers are connected relatives. So the tax is usually calculated on the actual price being paid, not the higher market value.”

He then identified the separate issue of the additional dwelling surcharge:

“If the buyers keep their current home and do not sell it on or before completion, they will own more than one dwelling. In that case, the higher rates for additional dwellings apply, because the purchase is not replacing their only or main residence.”

On that basis, Nick’s overall conclusion was that SDLT would usually be charged on the actual purchase price, but at the higher residential rates because the buyers would still own their original home after completion.

The Law

SDLT is charged on land transactions under Finance Act 2003. The basic charging provisions include sections 43 and 48 FA 2003. The amount on which SDLT is charged is the “chargeable consideration” for the transaction under section 50 FA 2003.

In many straightforward purchases, chargeable consideration means the price actually paid. There is sometimes confusion about whether HMRC can substitute market value where a property is sold at an undervalue between family members. For individual purchasers, that is not the normal rule. The market value rule in section 53 FA 2003 is directed at certain connected company transactions, not ordinary private purchases by individuals from relatives.

The separate higher rates for additional dwellings are contained in Schedule 4ZA FA 2003. Broadly, those rates apply where, at the end of the day of completion, the purchaser owns an interest in more than one dwelling and the new purchase is not a replacement of the purchaser’s only or main residence.

Where the higher rates apply, the residential SDLT rates are increased by the additional dwelling surcharge. In the scenario described here, that means the purchase is taxed at the higher residential rates rather than the ordinary residential rates.

Analysis

The SDLT position can be worked through in stages.

First, identify the consideration for the purchase. If the buyers are paying a stated sum for the property and there is no unusual arrangement involving debt assumption, exchange, or linked consideration, SDLT is generally calculated on that actual amount. A family discount does not by itself mean SDLT is charged on the full market value.

Second, consider whether the connected-person rules alter that result. In an ordinary purchase by individuals from relatives, they usually do not. The fact that the sellers are parents or parents-in-law does not automatically trigger a market value substitution for SDLT purposes.

Third, ask what properties the buyers will own at completion. If they complete the purchase of the new dwelling and still retain their current home, they will usually own interests in two dwellings at the end of that day.

Fourth, decide whether the new purchase is replacing an only or main residence. If the old home is being kept and rented out, rather than sold, the usual replacement test is not satisfied at completion. That is the point that commonly triggers the higher rates under Schedule 4ZA.

Fifth, calculate SDLT using the higher residential rates on the actual chargeable consideration. So if the agreed purchase price is lower than market value, that lower figure normally reduces the SDLT base, but the surcharge still applies because the buyers are acquiring an additional dwelling.

The practical result is that both statements can be true at once:

• SDLT is not usually charged on the full market value merely because the purchase is from family at a discount; and
• SDLT can still be higher than normal because the additional dwelling rates apply.

Nothing in this scenario suggests an “uninhabitable” or “not suitable for use” argument, but where readers are considering that issue more generally, the condition threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Outcome

Yes. In this type of case, the buyers would usually pay more SDLT than under the normal residential rates because the higher rates for additional dwellings apply.

However, SDLT would generally be calculated on the actual purchase price being paid for the property, not its higher market value, assuming the buyers are purchasing in their personal names and there is no special feature that changes the chargeable consideration.

Practical Steps

To assess the SDLT position properly, a buyer should check the following:

• What is the exact purchase price and are there any other forms of consideration, such as taking over debt or paying anything indirectly?
• Will the purchase be made by individuals personally or through a company?
• Will the current home still be owned at the end of the day of completion?
• Is the current home being sold so that the new property is genuinely replacing the buyer’s only or main residence?
• Will both spouses or civil partners have interests in more than one dwelling at completion, since the rules can apply by reference to the couple’s combined position?

It is also sensible to prepare the SDLT calculation in advance using the actual consideration and the higher residential rates, so there is no surprise shortly before completion.

Conclusion

Where a couple buy a relative’s home at a discount and keep their existing home as a rental property, SDLT is usually based on the discounted price actually paid, not the market value. But the higher rates for additional dwellings will normally apply, so the SDLT bill will still be higher than the standard residential amount.

Legal References Used

• Finance Act 2003, section 43
• Finance Act 2003, section 48
• Finance Act 2003, section 50
• Finance Act 2003, section 53
• Finance Act 2003, Schedule 4ZA
• 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.