Buying Property from a Family Member: SDLT on Connected Party Deals
When you buy from a family member at a discount, SDLT is still charged on the open market value — not the price you paid. The connected party rule under s.53 FA 2003 applies.
Last verified: April 2026
Key Takeaways
- •Under s.53 FA 2003, SDLT is charged on open market value when buyer and seller are connected — regardless of the actual price paid.
- •"Connected" includes spouse/civil partner, parent, child, sibling, and their spouses — as well as companies under common control.
- •An outright gift with no mortgage means chargeable consideration of £0 — no SDLT is due.
- •If you take over an outstanding mortgage on a gifted property, SDLT is charged on the mortgage debt assumed.
- •Underreporting the chargeable consideration on a connected party sale carries penalties — HMRC risk-assesses these returns.
In this article
The Connected Party Rule
Section 53 of the Finance Act 2003 provides that where a land transaction is between connected persons, the chargeable consideration for SDLT purposes is taken to be not less than the open market value of the subject-matter of the transaction.
In plain terms: if a parent sells a house to their child for £300,000, but the property is worth £400,000 on the open market, SDLT is calculated on £400,000 — not £300,000. The actual cash price paid is irrelevant where connected parties are involved and the price is below market value.
If the price paid is at or above market value, s.53 has no additional effect — SDLT is calculated on the price paid in the normal way. The rule only bites when there is a discount.
Statutory reference: Finance Act 2003, s.53 — "Where a land transaction is entered into by a person as purchaser (alone or jointly) in connection with the acquisition of an interest in land by a connected person, the market value rule applies."
Who Counts as Connected?
The definition of "connected person" for SDLT purposes follows s.1122 of the Corporation Tax Act 2010. The key connected relationships for family property transactions are:
| Relationship | Connected? |
|---|---|
| Spouse / civil partner | Yes |
| Parent / child | Yes |
| Sibling (brother / sister) | Yes |
| Lineal ancestor / descendant (grandparent, grandchild) | Yes |
| Spouse/civil partner of the above relatives | Yes |
| Unmarried cohabiting partner | No |
| Friend / acquaintance | No |
| Companies under common control | Yes |
Unmarried partners are NOT connected: The connected person rules do not extend to cohabiting (unmarried) partners. A transaction between unmarried partners at a discounted price is not subject to the market value rule — SDLT is charged on the actual consideration paid.
Worked Examples
Parent sells to child at a discount
Scenario: Parent sells house to child for £300,000. Open market value assessed at £400,000. The connected party rule applies: SDLT is charged on £400,000.
| Basis | Consideration | SDLT Due |
|---|---|---|
| Price paid (what you might expect) | £300,000 | £5,000 |
| Open market value (s.53 FA2003) | £400,000 | £10,000 |
Extra SDLT due to the connected party rule: £5,000. This is charged on the buyer even though they paid only £300,000.
SDLT on £400,000: 0% on £0–£125k = £0; 2% on £125k–£250k = £2,500; 5% on £250k–£400k = £7,500 → £10,000.
Gifted Property and Mortgages
When a family member gifts a property outright — with no cash consideration and no outstanding mortgage — the chargeable consideration is £0. No SDLT is due, regardless of the property's market value.
However, if the gifted property carries an outstanding mortgage that the recipient takes over, the assumed debt becomes the chargeable consideration. SDLT is charged on the amount of the mortgage debt assumed — even though no cash changes hands.
Gift with £150,000 outstanding mortgage
| Band | Rate | Tax |
|---|---|---|
| £0 – £125,000 | 0% | £0 |
| £125,000 – £150,000 | 2% | £500 |
| Total SDLT on assumed mortgage debt | £500 | |
Chargeable consideration = £150,000 (the mortgage debt assumed). Market value of the property itself is irrelevant because no cash was paid — only debt was assumed.
Pure gift (no mortgage)
£0
No consideration → no SDLT
Gift with £150k mortgage assumed
£500
SDLT charged on assumed debt
What to Disclose
The SDLT land transaction return must accurately reflect the chargeable consideration. Where the connected party rule applies, the chargeable consideration is the open market value — not the price paid. The return must therefore show the market value figure.
HMRC risk-assesses SDLT returns and is alert to transactions between connected parties at a discount. A return showing a low consideration for a connected party transaction — with no explanation — is likely to attract scrutiny. HMRC may raise a compliance check and request a surveyor's valuation.
Penalties for underreporting: An incorrect SDLT return that understates chargeable consideration can attract a penalty of up to 30% of the unpaid tax (or 100% for deliberate concealment), plus interest on the underpayment. Always obtain a professional valuation when a connected party transaction involves any discount.
Best practice: Commission a RICS-qualified surveyor to provide a formal market valuation at the date of completion. Attach this to your records and use the surveyor's figure as the chargeable consideration in the SDLT return.
Frequently Asked Questions
How does HMRC know if my family sold below market value?
SDLT returns are risk-assessed. Large discounts between connected parties are a common audit trigger. HMRC may request a valuation or challenge a return. Using a certified surveyor's valuation at the date of purchase is advisable.
Does the connected party rule apply to unmarried partners?
No. Unmarried cohabiting partners are not "connected persons" for SDLT purposes. The connected party rules apply to legal family relationships and business connections, not romantic relationships.
My parents want to gift me their second home. How much SDLT will I pay?
If the property has no outstanding mortgage and is gifted outright, the chargeable consideration is £0 — meaning no SDLT. If there's a mortgage you take over, SDLT is charged on the debt assumed.
Can I avoid the market value rule by using a trust?
No. Transfers into and out of trusts involving connected persons are subject to the same market value rules. HMRC actively challenges artificial structures designed to circumvent the connected party provisions.
Emma Richardson, MRICS
Chartered Surveyor & Property Tax Specialist
Emma Richardson is a RICS-qualified Chartered Surveyor with over 12 years of experience in UK property taxation. She founded Calculate My Stamp Duty UK to help buyers understand the complex world of property transaction taxes.
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