LBTT Guidance on Transactions Involving Connected Companies and Deemed Market Value

LBTT and transfers of property to connected companies

When land is transferred to a company that is connected with the seller, LBTT is usually worked out on the higher of the price actually given and the property’s market value at the effective date. This rule stops connected parties reducing tax by using a low price or no cash, although limited exceptions, reliefs and exemptions may still apply.

• The rule applies where the buyer is a company and the seller is connected with it under the statutory test in section 1122 of the Corporation Tax Act 2010.
• For most sales, LBTT is charged on at least market value; for leases, a special minimum rule based on the rent applies instead.
• The normal exemption for transactions with no chargeable consideration does not apply if this connected-company rule applies.
• Shares, stock or securities can count as consideration, and the rule can apply where these are used in transfers to a connected company.
• There are three main exceptions: certain trust cases and some company asset distributions, including winding up, subject to a three-year condition linked to earlier LBTT group relief claims.
• In practice, the key issues are whether the parties are legally connected, what the property is worth on the effective date, and whether any separate LBTT relief or exemption is available.

Scroll down for the full analysis.

LBTT and connected companies: when market value is used instead of the price paid

This page explains a special LBTT rule for land transactions involving companies that are connected with the seller. In these cases, LBTT is not always worked out by reference to the actual price paid. Instead, the tax charge may be based on the market value of the property, or on a higher amount than the parties actually agreed. This matters because a transfer at an undervalue, or even for no cash at all, can still produce an LBTT charge.

What this rule is about

As a general rule, LBTT is charged on the chargeable consideration actually given for a land transaction. Usually that means the real price paid, rent under a lease, or whatever else is being given in return for the land.

Section 22 of the Land and Buildings Transaction Tax (Scotland) Act 2013 creates an important exception. Where the buyer is a company and the seller is connected with that company, the chargeable consideration is treated as being at least the market value of the property at the effective date of the transaction. If the transaction is the grant of a lease, the legislation instead uses a minimum amount based on the rent.

The purpose is to stop connected parties reducing LBTT simply by transferring property to a company for less than it is worth.

What the official source says

The official guidance says that in a land transaction where:

• the buyer is a company, and
• the seller is connected with the buyer,

the chargeable consideration is not less than the market value of the property at the effective date. If the transaction is the grant of a lease, the chargeable consideration is taken to be not less than the rent.

The same approach also applies where property is transferred to a company and some or all of the consideration consists of shares, stock or securities in a company with which the seller is connected.

The guidance also makes two further points that are easy to miss:

• The normal exemption for transactions with no chargeable consideration does not apply if the transaction falls within this connected-company market value rule.
• Other exemptions or reliefs may still apply if their own conditions are met.

Whether the seller is “connected” with the buyer is determined using section 1122 of the Corporation Tax Act 2010, not by an ordinary-language test.

The guidance then identifies three exceptions where the deemed market value rule does not apply. In those cases, LBTT is charged on the actual consideration paid:

• Case 1: immediately after the transaction, the buyer company holds the property as trustee in the course of a trust management business.
• Case 2: immediately after the transaction, the buyer company holds the property as trustee, and the seller is connected with the company only because of section 1122(6) of the Corporation Tax Act 2010.
• Case 3: the seller is a company and the transaction is, or is part of, a distribution of assets, including on a winding up, provided that in the previous three years the property, or an interest from which it is derived, has not been the subject of a transaction for which the seller claimed LBTT group relief.

What this means in practice

The practical effect is that a transfer to a connected company cannot usually be made “cheaply” for LBTT purposes just by setting a low price.

If the company buyer is connected with the seller, you compare:

• the actual chargeable consideration given, and
• the market value of the property at the effective date.

The LBTT calculation uses whichever is higher.

That means:

• if the agreed price is below market value, LBTT is based on market value;
• if the agreed price is above market value, LBTT is based on the actual price;
• if no consideration is given, the transaction is not automatically exempt merely because nothing was paid.

This rule is especially important in family or group situations, incorporations, reorganisations, and transfers made as part of wider arrangements involving shares.

It also means that valuation becomes critical. If the parties are connected, the market value at the effective date can directly affect the tax charge.

How to analyse it

A sensible way to approach the issue is to ask the following questions in order.

• Is there a land transaction for LBTT purposes?
• Is the buyer a company?
• Is the seller connected with that company under section 1122 of the Corporation Tax Act 2010?
• What is the actual chargeable consideration, including any non-cash consideration such as shares or securities?
• What is the market value of the property at the effective date?
• Is the transaction the grant of a lease, so that the special rent rule is relevant?
• Does one of the three statutory exceptions apply?
• If section 22 applies, are there any separate exemptions or reliefs that still reduce or remove the LBTT charge?

This framework matters because the market value rule is not universal. It only applies where the statutory conditions are met. It is also displaced by the specific exceptions listed in the legislation.

Example

Illustration: an individual transfers a residential property to a company for £170,000.

If the individual is not connected with the company, the normal rule applies. The chargeable consideration is £170,000.

If the individual is connected with the company, the transaction falls within the connected-company rule. You then compare the actual consideration with market value.

• If the market value at the effective date is £275,000, LBTT is calculated on £275,000, not £170,000.
• If the market value is £150,000, LBTT is calculated on £170,000, because that is the higher amount.
• If no consideration is given at all, the normal “no chargeable consideration” exemption does not apply simply for that reason. The transaction can still be chargeable by reference to market value, unless another exemption or relief applies.

The official guidance also notes that the Additional Dwelling Supplement may be affected because that supplement is calculated by reference to the chargeable consideration used for the transaction.

Why this can be difficult in practice

The main difficulty is often not the existence of the rule, but whether its conditions are met.

First, “connected” is a defined tax concept. It depends on the statutory rules in section 1122 of the Corporation Tax Act 2010. Readers should not assume that connected means only close family ownership, or that it always requires direct control in a simple sense. The legal test is technical.

Second, market value can be disputed. The relevant time is the effective date of the transaction. If the property is unusual, partially developed, tenanted, subject to restrictions, or transferred as part of a wider arrangement, valuation may not be straightforward.

Third, the trust exceptions are narrow. It is important to check exactly why the seller is connected with the buyer company and in what capacity the company holds the property immediately after the transaction.

Fourth, the distribution exception for company sellers has a specific three-year condition linked to prior claims for LBTT group relief. That requires a careful review of the property’s recent transaction history, including whether the same interest, or an interest from which it is derived, has previously been transferred under group relief.

Finally, the guidance makes clear that the no-chargeable-consideration exemption is disapplied for these transactions, but other exemptions or reliefs may still be available. That means the analysis does not stop once section 22 applies.

Key takeaways

• Where land is transferred to a connected company, LBTT is usually charged on at least market value, not just the amount actually paid.
• A transfer for no consideration is not automatically exempt if the connected-company market value rule applies.
• The outcome often turns on two technical issues: whether the parties are “connected” under the statutory test, and what the property’s market value is at the effective date.

Source reference: LBTT(S)A 2013 sections 22, 23 and 58; Corporation Tax Act 2010 section 1122; Revenue Scotland guidance LBTT2007, last updated 4 March 2024.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: LBTT Guidance on Transactions Involving Connected Companies and Deemed Market Value

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