The SDLT Market Value Rule: Why Moving Property Into Your Own Company Isn't Free

Every year we meet a developer who has decided to move a property, or a whole portfolio, out of their own name and into a company they control — usually for the same sensible reasons everyone else does it: lower tax on retained profit, cleaner succession, a structure that scales. What a surprising number of them have not been told is that the company buying the property is, for Stamp Duty Land Tax purposes, treated as if it paid full market value for it — whatever actually changed hands, including nothing at all.

The rule, in plain terms

Section 53 of the Finance Act 2003 says that where a company acquires land and the seller is connected with that company, or receives shares in a connected company as some or all of the consideration, the chargeable consideration for SDLT is deemed to be not less than the property's market value at the effective date of the transaction. “Connected” follows the ordinary tax definition — broadly, a company controlled by the seller, or by the seller together with relatives, is connected with them. A director selling a development site to their own newly formed SPV for £1, crediting it to a director's loan account, or gifting it outright, is still charged SDLT calculated on the site's full open market value, not on whatever figure appears on the transfer.

Why this catches people off guard

The mistake is almost always the same one: assuming that because no real money is changing hands, or because a professional valuer hasn't been asked to put a number on anything yet, there is nothing much for SDLT to bite on. Section 53 exists precisely to close that gap. It does not care what the parties agreed, what a director's loan account says, or whether the transaction was structured to minimise consideration on paper — it substitutes market value as a matter of law. A commercial development site or an established rental portfolio can carry a market value running into six or seven figures, and the SDLT liability that follows is calculated on that figure in exactly the same way it would be on an arm's-length sale to a stranger.

The other trap: incorporation relief doesn't touch this

We regularly speak to landlords who have read up on incorporation relief under section 162 TCGA 1992 and concluded that incorporating is broadly tax-neutral, because the Capital Gains Tax on the uplift in value since purchase can be rolled over into the base cost of the new shares. That is true, as far as it goes — but incorporation relief is a Capital Gains Tax relief, full stop. It has no bearing whatsoever on the SDLT position, which sits under a completely separate part of the tax code and is triggered independently by section 53 the moment a connected company becomes the buyer. We cover the CGT side, and where incorporation relief does and doesn't apply, in our guide to incorporation relief for a property portfolio; this article is about the SDLT bill that arrives alongside it regardless of how clean the CGT position looks.

Where the SDLT surcharges stack on top

Market value is the starting point for the calculation, not the end of it. If any dwelling within the portfolio is caught, the company purchaser is generally within the 3% additional dwelling surcharge under Schedule 4ZA regardless of whether it already owns other property, because companies are treated as always owning an additional dwelling for this purpose — we set out how that surcharge works in our guide to the SDLT surcharge on additional dwellings. A single dwelling bought by a company for more than £500,000 can also fall into the separate 15% flat rate charge, covered in our article on the 15% SDLT flat rate on company purchases, subject to the reliefs that article sets out for genuine rental businesses. None of these surcharges are switched off just because the transferor and the company are connected — if anything, an incorporation is exactly the kind of transaction where they are most likely to apply in full.

The narrow reliefs that do exist

Two statutory routes can reduce or remove the section 53 charge, and both are narrower than most people expect.

• Partnership incorporation relief (Schedule 15, Finance Act 2003) can shelter some or all of the SDLT where a genuine multi-partner trading or property partnership incorporates, calculated with reference to the “sum of the lower proportions” — broadly, each partner's income profit share both before and after the transfer. It is built for real partnerships with more than one economically independent partner sharing genuine risk and reward, not for a sole landlord, or a husband-and-wife buy-to-let arrangement where one party holds a nominal share purely to access the relief. HMRC scrutinises exactly this pattern.
• Group relief under section 62 and Schedule 7 Part 1 can shelter a transfer between two companies already within a 75% group. It is no use to an individual incorporating for the first time, because at that point there is only one company in the structure — it becomes relevant later, when a group with an existing corporate structure moves property between group members, which we cover in our guide to SDLT group relief on property transfers.

Outside those two situations, the SDLT charge on market value is generally a real cost of incorporating, not a technicality to be planned away. The decision to incorporate needs to be made with that cost priced in from the outset, alongside the CGT, ATED and ongoing corporation tax picture — which is exactly the comparison we walk through in our guide to when an SPV structure actually pays off.

Getting the valuation right matters as much as the rule itself

Because the whole charge turns on “market value,” the valuation evidence behind the SDLT return matters. A director's own estimate, or a figure lifted from an out-of-date mortgage valuation, is a weak position to defend on enquiry into a connected-party transaction, and understating value on the SDLT return carries the same penalty and interest exposure as understating it on any other return. A proper, dated, contemporaneous valuation from a RICS surveyor, obtained before the transaction completes rather than reconstructed afterwards, is the standard piece of evidence HMRC expects to see if the figure is ever questioned — and it is far cheaper to commission upfront than to defend later.

Structuring around it: what actually helps

Since the SDLT itself is generally unavoidable on a straightforward incorporation, the planning that adds real value sits around it rather than against it: timing the transfer to a point in the tax year that suits cashflow, sequencing it alongside any pending SDLT surcharge changes, deciding whether family members should hold shares directly through a family investment company structure from day one rather than adding them after the fact and triggering a second connected-party transaction, and building the market value SDLT cost into the return-on-incorporation calculation before committing to the move rather than after the SDLT return has already been filed.

Common questions

What is the SDLT market value rule for connected company transfers?

Section 53 of the Finance Act 2003 says that where a company buys land and the seller is connected with that company, or the seller receives shares in a connected company as consideration, the chargeable consideration for SDLT purposes is not less than the market value of the property at the date of the transaction, regardless of what was actually paid. A director selling land to their own company for £1, or gifting it for no consideration at all, is still charged SDLT on the full open market value.

Does CGT incorporation relief also cover the SDLT charge?

No, and this is the most common misunderstanding. Incorporation relief under section 162 TCGA 1992 defers the Capital Gains Tax that would otherwise arise on transferring a property business into a company, by rolling the gain into the base cost of the shares received. It is a Capital Gains Tax relief only. It has no effect whatsoever on SDLT, which is charged separately under section 53 on the market value of the property being transferred, whatever the CGT position looks like.

Is there any way to avoid the SDLT market value charge when incorporating a property portfolio?

The main statutory route is partnership incorporation relief under Schedule 15 to the Finance Act 2003, which can reduce or eliminate the SDLT charge when a genuine trading or property partnership with more than one real partner incorporates, based on each partner's income profit-sharing ratio. It generally does not help a sole individual landlord or a husband-and-wife arrangement set up mainly to hold property rather than share genuine business risk and reward. Group relief under section 62 can shelter transfers between companies already in a 75% group, but it does not apply to a transfer from an individual to a company. For most single-owner incorporations, the SDLT charge on market value is simply a cost to plan around rather than one that can be relieved away.

Does the rule still apply if I sell the property to my company at full market value in cash?

Yes. Section 53 sets a floor on the chargeable consideration, not a cap. If the price paid already equals or exceeds market value, SDLT is simply charged on the price actually paid, as it would be for any other purchase, so a full-value cash sale into a connected company changes nothing about the amount of SDLT due. Where the rule matters is when consideration is nil, nominal, left outstanding on a director's loan account, or satisfied by an issue of shares worth less than the property, all of which are common in an incorporation and none of which reduce the SDLT bill below market value.

This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.

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