SDLT on gifted equity when buying a parent’s home
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Do you pay SDLT on the full market value when buying a parent’s property at a discount?
Introduction
A common question in family property transactions is whether Stamp Duty Land Tax (SDLT) is charged on the home’s full market value or only on what the buyer actually gives for it. This often comes up where a parent sells a property to a child for less than market value and treats the difference as a gift of equity.
The confusion usually arises because three different figures may exist at the same time: the market value of the property, the amount being paid to the seller, and the amount being borrowed from a mortgage lender. For SDLT, the key issue is usually the chargeable consideration, not the open market value, unless a special market value rule applies.
The Question
A buyer was living in a property owned by a parent and wanted to purchase it. The property was worth about £800,000. There was no existing mortgage. The plan was for the buyer to take a new mortgage of £450,000, with the remaining £350,000 being gifted by the parent as equity. The buyer wanted to know whether SDLT would be charged on £450,000 or on the full £800,000.
Nick’s Explanation
Nick’s view was that, on the facts given, SDLT would be charged on £450,000 rather than on the full market value.
In anonymised form, his explanation was:
“If the buyer is acquiring the property they already occupy, the new mortgage funds are being used to pay the parent, and the balance of the value is being given as an unconditional gift of equity, then the amount counted for SDLT is the amount actually given for the transaction. Assuming no other complication applies, that would be £450,000.”
He also pointed out that the mortgage amount and the SDLT consideration are separate concepts. A lender’s underwriting approach does not determine the SDLT position. In other words, the fact that a lender may describe the transaction in a particular way for loan-to-value purposes does not by itself alter the tax analysis.
The later update in the correspondence showed that, after the issue was pushed, the buyer’s other advisers accepted that SDLT was based on the lower figure rather than the full market value.
The Law
SDLT is charged on land transactions under Finance Act 2003. The starting point is that tax is calculated by reference to the chargeable consideration for the transaction.
The basic rule is in section 55 Finance Act 2003, which charges SDLT by reference to the chargeable consideration.
What counts as chargeable consideration is dealt with in Schedule 4 to Finance Act 2003. Broadly, chargeable consideration includes money or money’s worth given directly or indirectly for the subject matter of the transaction.
HMRC’s guidance also explains that SDLT is normally based on what the buyer gives for the property. A pure gift, with no consideration given in return, will generally not attract SDLT. Where part of the property value is gifted and part is paid for, SDLT is normally based on the amount paid and any other consideration actually given.
There are important exceptions. In some cases, SDLT is calculated using market value instead of actual consideration. The main example is where the transaction is between connected companies or otherwise falls within a statutory market value rule. But a straightforward sale by a parent to an individual child does not automatically trigger a market value substitution rule for SDLT simply because they are connected.
Analysis
On these facts, the analysis is usually as follows.
Identify what the buyer is actually giving for the property.
Here, the buyer is paying £450,000 to the parent. That is consideration in money.
Identify whether the balance is a real gift or something else.
If the remaining £350,000 is a genuine, unconditional gift of equity, and the buyer is not assuming any debt or giving anything else in return, that part is not chargeable consideration.
Check for any assumed mortgage debt.
If there had been an existing mortgage on the property and the buyer took over liability for it, assumption of debt could count as consideration. In this scenario, there was said to be no existing mortgage, so that point does not increase the SDLT figure.
Check whether any market value rule applies.
In an ordinary family sale from a parent to a child, the SDLT rules do not generally replace actual consideration with market value just because the sale is at an undervalue.
Apply the residential SDLT rates to the chargeable consideration.
If the buyer owns no other dwellings and no surcharge applies, the normal residential rates are applied to £450,000, not £800,000.
That is why the distinction between market value and consideration matters so much. A property may be worth £800,000, but if only £450,000 is actually given for it, and the rest is a genuine gift, SDLT is usually charged on £450,000.
The correspondence also highlighted a practical complication: some lenders may underwrite discounted family purchases in a way that causes difficulty on loan-to-value calculations. That is a mortgage product issue, not an SDLT rule. The tax analysis and the lender’s commercial criteria are separate.
Outcome
In a straightforward purchase of a parent’s property at an undervalue, where:
- the property is worth more than the amount being paid,
- the difference is a genuine gift of equity,
- there is no existing mortgage being taken over, and
- no special market value rule applies,
SDLT is generally charged on the amount actually given as consideration, not on the full market value.
On the example facts, that points to SDLT being calculated on £450,000 rather than £800,000.
Practical Steps
If you are dealing with a similar transaction, work through these points carefully:
Confirm the agreed legal purchase price in the contract and transfer.
Confirm whether any part of the value is being gifted outright as equity.
Check whether the buyer is taking on any existing mortgage or other debt secured on the property.
Check whether the buyer owns any other residential property, because that may affect the SDLT rate.
Check whether any first-time buyer relief or other relief is in point, although eligibility depends on the exact facts.
Make sure the conveyancer distinguishes clearly between market value, purchase price, gifted equity and mortgage advance.
If the lender raises concerns about loan-to-value on a bargain purchase, treat that as a separate mortgage issue rather than assuming it changes the SDLT treatment.
If the property is said to be uninhabitable or not suitable for use as a dwelling, that is a different SDLT issue entirely. The condition thresholds are now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, so poor condition alone may not be enough.
Conclusion
Where a parent sells a property to a child for less than market value and the shortfall is a genuine gift of equity, SDLT is usually based on the actual chargeable consideration, not the property’s open market value. In the example discussed here, that means SDLT would ordinarily be calculated on £450,000 rather than £800,000.
Legal References Used
- Finance Act 2003, section 55
- Finance Act 2003, Schedule 4
- HMRC Stamp Duty Land Tax Manual, SDLTM03720
- HMRC guidance: Stamp Duty Land Tax: the amount used to calculate what’s payable
- Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799
This page was last updated on 22 March 2026.
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