Do you pay SDLT if a parent sells a buy-to-let property to an adult child below market value?

Introduction

People often ask whether Stamp Duty Land Tax (SDLT) is reduced if a parent sells a property to a child for less than its market value and gifts the equity. The answer usually turns on the amount the buyer actually gives for the property, whether any mortgage is taken on, whether the property will be the buyer’s main residence, and whether any SDLT relief applies.

A common point of confusion is first-time buyer relief. A buyer may be a first-time buyer in the ordinary sense, but that does not automatically mean the relief is available. If the property is being bought as a buy-to-let rather than as the buyer’s only or main residence, the relief will normally not apply.

The Question

The scenario is this: a parent owns a buy-to-let property and wants to sell it to an adult child for £175,000, which matches the outstanding mortgage borrowing. The property is worth about £265,000, and the parent intends to gift the remaining equity. The child has never owned a property before, owns no other dwelling, and will hold the property as a buy-to-let at the time of purchase, although they may live in it themselves at some point in the future.

The question is whether SDLT is payable, and if so how much.

Nick’s Explanation

Nick’s key point was that first-time buyer relief is not available where the buyer is not intending to occupy the property as their only or main residence at the time of purchase.

In anonymised form, his explanation was:

“Although the buyer is a first-time buyer, first-time buyer relief will not apply because the property is being acquired as a buy-to-let and not for occupation as the buyer’s main residence at the time of purchase.”

He also explained that the gifted equity does not itself create SDLT on the higher market value. The starting point is the chargeable consideration actually given by the buyer. On the facts provided, that was £175,000.

Using the residential SDLT rates then referred to in the advice:

• 0% on the first £125,000
• 2% on the next £50,000

That produced SDLT of £1,000.

Nick further noted that the higher rates for additional dwellings would not apply if this was the buyer’s only property at the end of the transaction.

The Law

SDLT is charged under the Finance Act 2003 on land transactions in England and Northern Ireland. For a straightforward transfer of a dwelling, the tax is normally calculated by reference to the chargeable consideration given for the transaction.

Where a property is sold at an undervalue, SDLT is not automatically charged on full market value. In most ordinary sales between connected persons, the relevant figure remains the actual chargeable consideration, unless a specific market value rule applies. In a case like this, if the buyer pays £175,000 and the rest is a genuine gift of equity, the usual SDLT starting point is £175,000.

First-time buyer relief is contained in Schedule 6ZA to the Finance Act 2003. Paragraph 1(4) requires that the purchaser intends to occupy the purchased dwelling as the purchaser’s only or main residence. That requirement is critical. A person can meet the definition of a first-time buyer under paragraph 6(1), but still fail to qualify for the relief if the property is being bought as an investment property.

The higher rates for additional dwellings are governed by Schedule 4ZA to the Finance Act 2003. Broadly, they apply if, at the end of the day of the transaction, the buyer owns more than one dwelling and is not replacing their only or main residence. If the buyer will own only this one dwelling, the surcharge does not usually apply.

Analysis

Step 1: identify the nature of the purchase.

The child is buying a dwelling from a parent. Even though the transaction is within the family and below market value, it is still potentially chargeable to SDLT.

Step 2: identify the chargeable consideration.

The agreed price is £175,000. The fact that the property may be worth around £265,000 does not, by itself, mean SDLT is charged on £265,000. The gifted equity is usually not chargeable consideration. On the facts given, the relevant figure is £175,000.

Step 3: consider first-time buyer relief.

The buyer has never owned a property before, so they may satisfy the basic first-time buyer definition. But that is only part of the test. The relief also requires an intention to occupy the dwelling as the buyer’s only or main residence. Here, the plan is to keep the property as a buy-to-let initially. That means the occupation requirement is not met at completion, so first-time buyer relief is not available.

Step 4: consider the higher rates for additional dwellings.

The buyer owns no other property and this will be the only dwelling owned at the end of the transaction. On those facts, the additional 3% surcharge should not apply.

Step 5: apply the ordinary residential rates.

Using the rates referred to in the original advice, SDLT on £175,000 is:

• 0% on the first £125,000 = £0
• 2% on the next £50,000 = £1,000

Total SDLT: £1,000.

The later possibility that the buyer may one day move into the property does not change the SDLT position at the time of purchase. For first-time buyer relief, the relevant intention is the intention at the effective date of the transaction.

Outcome

On these facts, the practical conclusion is that SDLT is payable at the ordinary residential rates on £175,000, giving a tax charge of £1,000 based on the rates used in the advice.

First-time buyer relief is not available because the property is being bought as a buy-to-let rather than for immediate occupation as the buyer’s only or main residence.

The higher rates for additional dwellings do not apply if the buyer owns no other dwelling at the end of the transaction.

Practical Steps

If you are assessing a similar family transaction, check the following:

• What is the actual chargeable consideration being given?
• Is any mortgage being assumed or taken over by the buyer?
• Will the buyer live in the property as their only or main residence at completion?
• Will the buyer own any other dwelling at the end of the transaction?
• Are there any special rules that could substitute market value for the actual price?
• Which SDLT rates apply on the effective date of the transaction?

It is also sensible to keep clear evidence of the agreed price, the gifted equity, and the buyer’s intended use of the property at the time of purchase. Those facts can matter if the SDLT treatment is later reviewed.

Conclusion

Buying a property from a parent at below market value does not automatically remove SDLT or make first-time buyer relief available. If the buyer is purchasing the property as a buy-to-let, first-time buyer relief will usually fail even if the buyer has never owned property before. In the scenario described, SDLT is charged on the £175,000 paid, producing a liability of £1,000 under the rates used in the advice.

Legal References Used

• Finance Act 2003
• Finance Act 2003, Schedule 6ZA, paragraph 1(4)
• Finance Act 2003, Schedule 6ZA, paragraph 6(1)
• Finance Act 2003, Schedule 4ZA
• HMRC SDLTM03720 on chargeable consideration
• HMRC guidance on first-time buyers relief
• HMRC guidance on higher rates for additional dwellings

This page was last updated on 22 March 2026.

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