Can a company sell a probate-relief property to a director’s child without losing SDLT relief?

Introduction

Readers often ask whether a company that bought a property with SDLT relief can later sell that property to a family member of a director without causing the relief to be withdrawn. The concern usually arises where the buyer is connected to the company, such as a director’s child, and the sale is intended to take place at full market value.

This question matters because the connected party rules can change how SDLT is calculated, and some SDLT reliefs can be withdrawn if a later event is treated as disqualifying. The key issue is whether a genuine market-value sale to a connected person is enough, by itself, to trigger clawback of the relief.

The Question

A property development company bought a dwelling for development and resale and claimed probate relief on the purchase. The acquisition was funded by directors’ loans. The company is now considering selling the property to a director’s child, who is a first-time buyer. The proposed buyer would fund the purchase partly from family trust funds and partly by mortgage borrowing. The sale would be at current market value.

The main questions are:

• Is the director’s child a connected person for SDLT purposes?
• Would a sale to that connected person cause the earlier probate relief to be withdrawn?
• Are there any other SDLT, corporation tax or related tax points to consider?

Nick’s Explanation

Nick’s view was that a director’s child is a connected person for these purposes, and that the market value rule applies on a transfer by a company to a connected person.

In anonymised form, his explanation was:

“Under section 53 of the Finance Act 2003, if a company sells property to a connected person, the SDLT calculation must be based on the full market value of the property. A director’s child is a connected person under section 1122 Corporation Tax Act 2010.”

On the risk of relief being withdrawn, his key point was that a connected-party sale is not automatically a disqualifying event:

“A sale at open market value to a connected person is not, in itself, a disqualifying event. Provided the sale reflects a genuine market transaction in line with the company’s development and resale activity, the relief should not automatically be lost.”

He also noted that HMRC may look more closely at connected-party transactions, so the practical protection is evidence that the sale is genuine and at proper market value, such as an independent valuation.

His overall recommendation was that it is generally reasonable to proceed if the commercial basis for the sale is sound, the price is properly supported, and the parties accept that HMRC may ask questions because of the family connection.

The Law

The main statutory provisions are these:

• Section 53 Finance Act 2003, which applies a market value rule in certain transactions involving companies and connected persons.
• Section 1122 Corporation Tax Act 2010, which defines connected persons and includes certain family relationships.
• Section 108 Finance Act 2003, which deals with linked transactions.

Where a company transfers land to a connected person, SDLT is generally calculated by reference to market value rather than simply the amount actually paid. That rule is designed to prevent undervalue transfers from reducing SDLT.

Whether earlier relief is withdrawn depends on the terms of the specific relief and whether a later event is treated as disqualifying. The important point here is that a sale to a connected person is not automatically disqualifying merely because the parties are connected. The real question is whether the statutory conditions for the relief continue to be met and whether the transaction is a genuine commercial disposal rather than an arrangement designed to obtain an unintended tax advantage.

If the property is a dwelling, the buyer may also consider first-time buyer relief, but that relief only applies if all statutory conditions are satisfied.

More generally, where a property is said to be uninhabitable or not suitable for use as a dwelling, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. That authority is relevant where a buyer is considering any SDLT argument based on the physical condition of the property.

Analysis

The analysis can be broken down into four steps.

First, the proposed buyer is connected to the company. A director’s child falls within the connected person rules through the statutory definition in section 1122 Corporation Tax Act 2010. So this is a connected-party transaction.

Second, because the seller is a company and the buyer is connected, section 53 Finance Act 2003 means SDLT is assessed on the market value of the property. If the agreed price is already full market value, the practical result may be the same, but the legal basis is still the market value rule.

Third, the earlier probate relief is not withdrawn simply because the company sells to a connected person. The fact of connection does not by itself create a clawback. What matters is whether the sale amounts to a disqualifying event under the terms of the relief. On the facts described, a genuine resale at open market value in the ordinary course of a development and resale business does not, on its face, appear to be disqualifying.

Fourth, HMRC may still scrutinise the transaction more closely because it is between connected parties. That does not mean the transaction is ineffective or abusive. It means the company should be able to show:

• the property was genuinely held for development and resale;
• the sale price reflects current market value;
• the transaction has real commercial substance;
• the paperwork is consistent with an ordinary arm’s-length disposal, even though the parties are connected.

The source of the buyer’s funds does not usually change the SDLT treatment of the land transaction itself. However, if trust funds are involved, there may be separate trust reporting, tax or compliance issues outside the SDLT calculation.

There is also a need to consider whether any other transfers or arrangements involving family members or trusts are linked with this purchase. If they are linked transactions under section 108 Finance Act 2003, SDLT may need to be considered on that wider basis.

The company should also remember that selling the property may create taxable profit under corporation tax rules in the normal way. If the property is trading stock of a development business, the profit will usually be taxed as part of the company’s trading results.

Outcome

A sale by a company to a director’s child is a connected-party transaction for SDLT purposes. The buyer’s SDLT position is therefore tested by reference to market value under section 53 Finance Act 2003.

On the facts described, a sale at genuine open market value does not automatically trigger withdrawal of the earlier probate relief. The transaction is legally possible and is not disqualifying in itself. The main practical issue is the greater likelihood of HMRC asking for evidence because the sale is to a family member of a director.

Practical Steps

• Obtain an independent professional valuation to support the market value used for the sale.
• Keep clear board minutes and transaction documents showing the commercial reason for the disposal.
• Check the exact statutory conditions of the probate relief originally claimed to confirm whether any specific clawback provisions could apply.
• Review whether the buyer qualifies for first-time buyer relief on the purchase.
• Consider whether any related trust arrangements create separate tax or reporting issues.
• Check whether there are any linked transactions under section 108 Finance Act 2003.
• Ensure the company’s corporation tax treatment of the sale profit is properly accounted for.

Conclusion

If a company sells a probate-relief property to a director’s child at genuine market value, the transaction is still a connected-party sale, so SDLT is based on market value. But that fact alone does not usually cause the earlier relief to be withdrawn. The safest course is to proceed only with strong evidence of market value and clear commercial documentation.

Legal References Used

• Finance Act 2003, section 53
• Finance Act 2003, section 108
• Corporation Tax Act 2010, section 1122
• 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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