LBTT Guidance on Market Value for Transactions with Connected Companies

LBTT on Land Transfers to Connected Companies

When land is transferred to a company connected with the seller, LBTT is usually worked out on at least the property’s market value at the effective date, rather than just the price actually paid. This rule can apply even where little or no money changes hands, and it can increase both LBTT and the Additional Dwelling Supplement for residential property.

• If the buyer is a company and the seller is connected with it, the tax charge is generally based on the higher of the actual consideration and the market value.
• For leases, the chargeable consideration is treated as being at least the rent.
• A transfer for nil consideration is not automatically exempt if this connected-company rule applies.
• The rule can also apply where the seller receives shares or securities in a connected company instead of cash.
• There are limited exceptions, including certain trust cases and some company asset distributions, where LBTT is charged on the actual consideration instead.
• Key practical checks are whether the parties are connected under corporation tax rules, the market value at the effective date, and whether any exception, relief or ADS applies.

Scroll down for the full analysis.

LBTT: when a land transfer to a connected company is taxed by reference to market value

This page explains a special LBTT rule for land transactions involving connected companies. In most cases, LBTT is charged on what is actually given for the property. But if the buyer is a company and the seller is connected with that company, the law can replace the actual price with a deemed minimum amount. That can increase the tax charge, including the Additional Dwelling Supplement where relevant.

What this rule is about

LBTT is normally based on the chargeable consideration actually given for a land transaction. That is usually the purchase price or other value passing under the deal.

Sections 22 and 23 of the Land and Buildings Transaction Tax (Scotland) Act 2013 create an important exception. Where land is transferred to a company by a person connected with that company, the consideration is treated as being at least the market value of the property at the effective date. For leases, the rule works by deeming the consideration to be at least the rent.

The purpose is to stop LBTT being reduced by transferring land into a connected company for an artificially low amount, or for no cash consideration at all.

What the official source says

The official guidance says that where the buyer is a company and the seller is connected to the buyer, the chargeable consideration is not less than the market value of the property at the effective date. If the actual consideration is higher than market value, the higher actual consideration is used. So in practice the tax base is the greater of:

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

If the transaction is the grant of a lease, the guidance states that the chargeable consideration is taken as not less than the rent.

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

The usual LBTT rule that a transaction with no chargeable consideration is exempt does not apply to transactions caught by this connected-company rule. So a transfer for nil consideration can still be chargeable if section 22 applies.

Whether persons are connected is determined by section 1122 of the Corporation Tax Act 2010. The guidance also notes three exceptions where the deemed market value rule does not apply, so LBTT is then charged on the actual consideration instead.

What this means in practice

The practical question is not just “what price is being paid?” It is also “is the seller connected with the buying company?” If the answer is yes, market value becomes critical.

This matters most in transactions such as:

• an individual transferring property to their own company or a family company
• a transfer into a company for a reduced price
• a transfer for no cash consideration
• a transfer where the seller receives shares or securities instead of cash
• intra-group or restructuring transactions where one party is a company

If the rule applies, LBTT can be charged on a figure higher than the amount actually paid. That can produce a significant increase in tax. If the property is residential and the Additional Dwelling Supplement applies, that supplement is also calculated by reference to the chargeable consideration as determined under these rules.

The rule also means that a nil-consideration transfer to a connected company is not automatically outside LBTT. The normal exemption for transactions with no chargeable consideration is expressly switched off for these cases.

How to analyse it

A sensible way to approach the issue is to work through the following questions.

• 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, if any?
• What is the market value of the property at the effective date?
• If it is a lease, what is the rent and how does the lease-specific rule apply?
• Does any part of the consideration consist of shares or securities in a connected company?
• Does one of the statutory exceptions apply?
• Is any separate exemption or relief available, even though the nil-consideration exemption is disapplied?
• If the property is residential, does ADS also apply?

The three exceptions mentioned in the guidance are important.

Case 1 applies where immediately after the transaction the buyer company holds the property as trustee in the course of a business that consists of, or includes, trust management.

Case 2 applies where 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 applies where the seller is a company and the transaction is, or forms part of, a distribution of assets, including on a winding up, and no relevant interest in the property has been the subject of a transaction for which the seller claimed LBTT group relief within the previous three years.

If one of those exceptions applies, the market value substitution rule is turned off and LBTT is charged on the actual consideration.

Example

This is an illustration based on the official guidance.

An individual, A, transfers a residential property to company B for £170,000.

If A is not connected with company B, the chargeable consideration is simply £170,000. If there were no chargeable consideration at all, the normal exemption for nil consideration could apply.

If A is connected with company B, the chargeable consideration becomes the higher of:

• the amount actually given, £170,000, and
• the market value at the effective date.

If the market value is £275,000, LBTT is charged on £275,000, not £170,000. The same would apply even if no consideration were given, because the nil-consideration exemption does not apply in these connected-company cases.

If instead the market value is £150,000, LBTT is charged on £170,000, because the actual consideration is higher than market value.

Why this can be difficult in practice

The hardest issues are usually not the wording of the rule, but applying it to real facts.

First, the connected persons test comes from corporation tax legislation, not LBTT legislation. That means the answer may depend on ownership, control, family relationships, or other connecting factors defined elsewhere. A reader should not assume that “connected” only means direct share ownership.

Second, market value can be contentious. The tax result may turn on a valuation at the effective date, especially where the transfer price is low or nil. If the valuation is uncertain, the LBTT position is uncertain too.

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

Fourth, the distribution exception for company sellers requires careful checking of the previous three years. A past claim for LBTT group relief in relation to the property, or an interest from which it is derived, can prevent the exception from applying.

Finally, the guidance makes clear that although the nil-consideration exemption is disapplied, other exemptions or reliefs may still be available. So the analysis should not stop once section 22 is engaged.

Key takeaways

• If land is transferred to a connected company, LBTT is often charged on at least market value, not just the stated price.
• A transfer for no consideration can still be chargeable, because the usual nil-consideration exemption does not apply to these cases.
• The main practical issues are whether the parties are connected, what the market value is, and whether one of the statutory exceptions or other reliefs applies.

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 Market Value for Transactions with Connected Companies

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