Deemed Market Value Rules for Property Transfers to Connected Companies Explained

LTT market value rule for connected companies

When a company buys land from a person or business connected to it, Land Transaction Tax is usually worked out using the property’s market value at the effective date, not just the price actually paid. This rule helps stop connected parties reducing tax by transferring land cheaply or as a gift, although leases, reliefs, exemptions and some special exceptions still need to be checked.

• If the buyer is a company and the seller is connected to it, the taxable consideration is generally at least the market value of the property.
• This can apply even where no money is paid, so a gift of land to a connected company may still trigger LTT.
• If the actual chargeable consideration is higher than market value, the higher actual amount is used instead.
• For leases, rent must also be taken into account, so the calculation is not based on market value alone.
• The rule can also apply where consideration includes shares in a company connected with the seller, including shares in the buyer.
• You should still check the statutory connected persons test, the valuation at the effective date, and whether any exemption, relief or specific exception applies.

Scroll down for the full analysis.

LTT and connected companies: when market value replaces the actual price

This page explains the Land Transaction Tax rule that can substitute market value for the actual price paid when a company buys land from a connected person. The rule matters because it can bring a transaction into charge even where little or no money changes hands, and it can increase the taxable amount above the stated consideration.

What this rule is about

Normally, LTT is charged by reference to the chargeable consideration actually given for a land transaction. In many cases that means the price paid, or the value of something given in return.

Section 22 changes that position for certain transactions involving companies. Where the buyer is a company and the seller is connected to that company, the transaction is generally taxed by reference to the market value of the property at the effective date of the transaction, rather than just what was actually given.

The same broad approach also applies where some or all of the consideration consists of shares in a company that the seller is connected with, including shares in the buyer itself.

This is an important anti-avoidance style rule. Its practical effect is to stop connected parties reducing LTT simply by transferring land at an undervalue or for no consideration.

What the official source says

The official material says that where a company acquires land from a seller who is connected to it, the chargeable consideration is at least the market value of the subject matter of the transaction at the effective date.

If the transaction is the grant of a lease at a rent, the rent is also taken into account. In other words, for a lease you do not look only at market value. You also consider the rent in the usual way.

The source also says that if the actual chargeable consideration given is greater than the amount produced by the market value rule, the higher actual consideration is used instead.

So the rule is not simply “always use market value”. The more accurate position is:

• start by asking whether the connected company rule applies;
• if it does, compare market value with the actual chargeable consideration;
• use whichever produces the higher taxable amount, subject to the special lease treatment for rent.

The source makes clear that this rule overrides the usual result where no consideration is given. A gift of land to a connected company is therefore not automatically outside the charge. Market value is substituted.

It also states that other exemptions and reliefs may still apply. So the market value rule affects the amount treated as consideration, but it does not automatically block an exemption or relief that is otherwise available. The source specifically mentions that there are also some specific rules where market value is not imposed.

For these purposes, “company” includes any body corporate, although if the entity is a partnership that is also a body corporate, the partnership rules apply instead. References to shares include stocks and securities issued by a company.

What this means in practice

If a company is buying land from someone connected with it, you should not assume the tax is based on the contract price.

Three common practical consequences follow.

• A low transfer price may be ignored. If a property worth £275,000 is transferred to a connected company for £170,000, the taxable consideration may be £275,000.
• A gift may still be taxable. If a connected company receives land for no consideration, the transaction may still be charged by reference to market value.
• For leases, rent remains relevant. Even if market value is substituted for the premium or other non-rent consideration, tax on the rent element may still arise separately.

The rule is not limited to cash purchases. It can also apply where the seller receives shares instead of money. If the seller is connected to the buyer, or connected to the company whose shares are issued or transferred as consideration, market value can be substituted for the property transferred.

At the same time, the source makes an important qualification: if the actual chargeable consideration is higher than the amount produced by the market value rule, the actual amount is taxed instead. So the rule sets a floor, not always a fixed amount.

How to analyse it

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

1. Is the buyer a company?

The rule applies where the buyer is a company. The source says this includes any body corporate, subject to the special point that partnership rules apply to a partnership that is also a body corporate.

2. Is the seller connected to the buyer?

The source refers to the connection test in section 1122 of the Corporation Tax Act 2010. That is the statutory test you need to apply. The answer is not always obvious from ownership alone, so this can require careful checking.

3. Is any of the consideration made up of shares in a connected company?

Even if the seller is not connected to the buyer, the rule may still need attention if some or all of the consideration consists of shares in a company that the seller is connected with, including the buyer itself.

4. What is the market value of the property at the effective date?

The relevant valuation point is the effective date of the transaction. You are looking at the market value of the subject matter of the transaction at that date.

5. What is the actual chargeable consideration?

You still need to identify what was actually given. That may be money, debt release, shares, or something else that counts as chargeable consideration.

6. Is the transaction a lease?

If so, rent must also be considered. The source says that where the acquisition is the grant of a lease at a rent, the market value amount is taken together with that rent.

7. Do any exemptions, reliefs, or specific exceptions apply?

The source expressly says that other conditions making the transaction exempt, or any relief that may be claimed, still apply. It also says there are some specific rules under which market value will not be imposed. So do not stop the analysis once you identify a connected company transaction.

Example

Illustration: A shareholder transfers a freehold commercial property to a company they are connected with for no consideration. The property is worth £275,000 on the effective date.

Without the connected company rule, a transaction with no chargeable consideration might fall outside charge. But here the buyer is a connected company, so market value is substituted. The chargeable consideration is treated as £275,000, unless an exemption or relief applies.

If instead the company paid £300,000 for the same property, the source indicates that the actual chargeable consideration of £300,000 would be used, because it is higher than market value.

Why this can be difficult in practice

The first difficulty is connection. The source points to the statutory connected persons test, but applying that test can be fact-sensitive, especially where there are indirect holdings, family relationships, or corporate chains.

The second difficulty is valuation. The rule depends on market value at the effective date, not simply on what the parties agreed. If the valuation is uncertain, the LTT position may also be uncertain.

The third difficulty is identifying all of the consideration. This is especially important where the consideration is non-cash, such as the release of a debt or the issue of shares.

Leases add another layer. The source shows that for a lease you may need to consider both the market value rule and the tax treatment of the rent. That means the comparison is not always a simple one-number exercise.

Finally, the source notes that exemptions, reliefs, and some specific non-market-value rules may still apply. So a connected company transfer is not automatically taxable in full by reference to market value. The market value rule is part of the analysis, not necessarily the end of it.

Key takeaways

• If a company buys land from a connected seller, LTT is generally based on at least market value, not just the stated price.
• A transfer for no consideration to a connected company can still be taxable because market value is substituted.
• You must still check the connected persons test, the effective-date valuation, any rent on a lease, and any available exemption or relief.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Deemed Market Value Rules for Property Transfers to Connected Companies Explained

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