Can SDLT be based on an earlier market value if a director sells property to their company after refurbishment?

Introduction

Readers often search for this issue where a property owner agrees to sell land or dwellings to their own company, the company then carries out works before legal completion, and the property is worth much more by the time the transfer is finally completed.

The key SDLT question is usually not just whether the parties are connected, but when the transaction became effective for tax purposes. If the company took possession and the contract was substantially performed before completion, SDLT may be tested by reference to the market value at that earlier date rather than the higher value on formal completion.

The Question

An individual owned two residential units personally. They were valued in late 2023 at a combined figure of £225,000 in their then condition. The individual and their company agreed that the company would acquire the properties for that amount, but legal completion would happen later, after the company had funded and carried out refurbishment works and once finance was in place.

By the time the transfer was due to complete in 2025, the properties had been significantly improved and were worth much more. The issue was whether SDLT should be calculated by reference to:

• the earlier combined value of £225,000, or
• the higher market value at the date of legal completion.

A further concern was whether a board minute and other contemporaneous evidence were enough to show there was a relevant agreement for SDLT purposes, even if there was no formal sale contract in the usual conveyancing form at that time.

Nick’s Explanation

Nick’s explanation focused on two central points in Finance Act 2003:

• the effective date rules for contracts that are substantially performed before completion, and
• the market value rule for connected persons.

In anonymised form, his reasoning was that the solicitor’s concern about market value was understandable, but the market value rule applies by reference to the effective date of the land transaction. If the company had already taken possession of the properties and carried out the refurbishment works under an earlier agreement, there was a strong argument that the contract had been substantially performed at that earlier stage.

Nick also noted that section 44(10)(b) Finance Act 2003 says that a contract includes “any agreement”. On that basis, a board minute, together with emails, meeting notes or other contemporaneous records, may be capable of evidencing the relevant agreement.

His practical summary was that, if possession had genuinely passed to the company so that section 44 applied, SDLT could be based on the market value at the earlier effective date. On the facts described, the late 2023 valuation would then be important evidence of that earlier market value, and the two transfers would be treated as linked transactions.

The Law

The main provisions are in Finance Act 2003.

• Section 43 deals with chargeable consideration generally.

• Section 44 sets out the contract and conveyance rules. Normally the effective date is completion, but if a contract is substantially performed before completion, the contract is treated as the land transaction at that earlier time.

• Section 44(5) explains that substantial performance includes the purchaser taking possession of the whole, or substantially the whole, of the subject matter of the contract.

• Section 44(10)(b) provides that “contract” includes “any agreement”.

• Section 53 applies the market value rule in certain transactions involving companies and connected persons. Broadly, where an individual transfers land to their own company, the chargeable consideration is taken to be not less than the market value at the effective date.

• Section 108 contains the linked transactions rules, which can require multiple transactions forming part of a single scheme, arrangement or series between the same buyer and seller or connected persons to be considered together.

Where the property is residential, the residential SDLT rates must then be applied to the chargeable consideration as determined under those rules. If the buyer is a company, it may also be necessary to consider whether the higher rates for additional dwellings apply, and in some cases whether the 17% flat rate in Schedule 4A is in point, although that will depend on the detailed facts and any reliefs.

Analysis

The analysis turns on a sequence of questions.

First, was there an agreement for the company to buy the properties before legal completion?

For SDLT, the absence of a formal sale contract is not necessarily fatal. Section 44(10)(b) is deliberately broad. A board minute on its own may not always settle every factual dispute, especially where the seller was also involved in the company decision-making, but it can still be relevant evidence. If supported by emails, meeting notes, valuation instructions, funding papers, records of the company entering the property, invoices for works paid by the company, and evidence that the parties acted on the arrangement, the argument becomes stronger.

Second, did the company substantially perform that agreement before legal completion?

This is the critical issue. Substantial performance can occur if the purchaser takes possession of the whole or substantially the whole of the subject matter. In a case like this, that means looking closely at what the company was actually allowed to do and what control it had in practice.

Indicators pointing towards possession may include:

• the company having physical control of the properties,
• the company controlling access,
• the company commissioning and paying for the works,
• the company acting as if it had the right to occupy the properties for the purposes of the development, and
• the individual owner not retaining meaningful possession inconsistent with the sale arrangement.

If those facts are established, there is a credible argument that the effective date was when the company took possession, not the later completion date.

Third, if section 44 applies, what value is used for SDLT?

Because the transfer is between an individual and their company, section 53 is likely to apply. That means the chargeable consideration cannot be less than market value at the effective date. If the effective date was the earlier date of substantial performance, then the relevant market value is the market value at that earlier date, not the later post-refurbishment value.

That is why the valuation from late 2023 matters. It is not simply evidence of an agreed price. It may also be evidence of the market value at or around the effective date, assuming possession passed around that time and the valuation properly reflects the condition of the properties at that point.

Fourth, do the two properties need to be linked?

If both properties were part of the same overall arrangement between the same parties, they are likely to be linked transactions under section 108. In that case the consideration is aggregated for rate-setting purposes. On the facts described, treating them as linked is likely to be correct.

Fifth, what is the main weakness in the earlier-value argument?

The main risk is factual, not conceptual. If HMRC or another party says the company did not truly take possession, but merely had a licence to enter and carry out works pending a later sale, then section 44 may not have been triggered at the earlier stage. If that happened, the effective date would remain the completion date, and section 53 would then test the transaction by reference to the higher market value at that later date.

So the case depends heavily on evidence showing that the company’s rights and conduct amounted to possession under the agreement to purchase, not just temporary access for building works.

Finally, if anyone argues that the property was uninhabitable before the works, that point should be handled with care. In uninhabitable or not suitable for use cases, 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 lightly fall outside normal residential treatment merely because it needs repair, improvement or substantial refurbishment.

Outcome

On the facts described, there is a strong argument that SDLT should be based on the market value at the earlier effective date, provided the company had already taken possession under the agreement and the contract was therefore substantially performed before legal completion.

If that is right, the earlier valuation of £225,000 can be relevant evidence of market value at the effective date, and the two property transfers should be treated as linked transactions.

But this result depends on evidence. If the facts do not support substantial performance, SDLT would instead be tested by reference to the higher market value at completion because of the connected persons rule.

Practical Steps

A reader assessing a similar case should gather and review the following:

• All documents showing the original agreement, including board minutes, emails, meeting notes and funding papers.

• Evidence of when the company first entered the property and on what basis.

• Building contracts, invoices, insurance records and access arrangements showing who controlled the property during the works.

• Evidence that the company, rather than the individual owner, had practical possession of the whole or substantially the whole of the property.

• A reliable valuation of the property in its condition at the date possession was taken.

• Confirmation of whether the transactions are linked and whether any higher residential rates or other SDLT provisions also need to be considered.

It is also sensible to ensure that the SDLT return position matches the evidence. Where conveyancers are unwilling to file on a contested SDLT analysis, specialist SDLT input is often needed so that the tax position is fully reasoned and documented.

Conclusion

In a connected-party transfer from an individual to their company, SDLT is normally based on market value. The real question is which date supplies that market value. If the company had already taken possession under an earlier agreement and the contract was substantially performed, the effective date may be earlier than completion, allowing SDLT to be measured by the earlier market value rather than the later enhanced value after refurbishment.

Legal References Used

• Finance Act 2003, section 43

• Finance Act 2003, section 44

• Finance Act 2003, section 53

• Finance Act 2003, section 108

• 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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