Clients ask for this regularly: the property sits in Company A, it needs to be in Company B, and since they own both it feels like moving a file between drawers. Lenders do not see it that way, and neither does HMRC.
Unless one company is a 75% subsidiary of the other, or both are 75% subsidiaries of a third, there is no group. An individual shareholder does not create one. That means no SDLT group relief, no no-gain-no-loss treatment for corporation tax, and — for our purposes — a transaction your lender will underwrite as a purchase between connected parties.
Why lenders are cautious about connected-party sales
A sale between parties who are not at arm’s length is the classic structure behind value manipulation, so most lenders apply specific rules:
- Many will lend on the lower of purchase price and valuation, which removes the point of transferring at an uplifted figure.
- Some decline connected-party transactions outright, particularly at higher loan-to-values.
- Several apply a six-month rule, restricting lending where the transferor acquired the property recently.
- Almost all will want to understand the commercial reason for the transfer. “Tax planning” alone is a weak answer; ring-fencing risk, separating a development from an investment portfolio, or preparing a company for sale are answers underwriters accept.
Declare the relationship on the application. It will be discovered at legal stage anyway, and finding it late costs you the case.
What the funding looks like
The existing charge over the property has to be discharged, so Company A’s lender is repaid in full — with any early repayment charge crystallising — and Company B takes a new facility. Expect:
- Debenture over Company B, giving fixed and floating charges across its assets.
- Personal guarantees from you as director, frequently supported by independent legal advice.
- Cross-guarantees between the companies where the lender wants them, which has the effect of joining the two balance sheets you may have been trying to separate. Read this clause properly — it can defeat the entire purpose of the transfer.
- A new charge registered at Companies House within 21 days of creation. Miss that and the charge is void against a liquidator or administrator.
Funding the tax, not just the property
The transfer generates cash costs before any benefit arrives. SDLT is charged on open market value under the connected-company rule, at the higher residential rates or the non-residential rates depending on the asset, and is payable within 14 days. Company A may have a chargeable gain taxed at 19% to 25%, with indexation only running to December 2017. If the property is opted to tax and the deal is not a transfer of a going concern, VAT at 20% applies — and SDLT is then charged on the VAT-inclusive figure.
None of that can be added to the mortgage. It has to come from company cash, a director’s loan, or a separate facility, and lenders will ask where it is coming from.
Leaving the consideration outstanding
Where Company B cannot fund the full price, the balance is often left as an intercompany loan. That works, but document it: written terms, an interest rate, a repayment mechanism. An undocumented balance creates problems with the loan relationship rules, with your accountant at year end, and with the next lender who reads the accounts.
How to present the case
A connected-party transfer that gets funded usually arrives with:
- An independent open market valuation, instructed before the application.
- A written explanation of the commercial rationale.
- Board minutes and members’ resolutions for both companies — section 190 of the Companies Act 2006 normally requires approval in each.
- Up-to-date accounts and management figures for both companies.
- A clear source of funds for the SDLT, tax and fees.
- Confirmation of the VAT position and, if relevant, the TOGC paperwork.
Cases presented that way get through. Cases presented as “just moving it across” do not.
The alternative worth pricing first
If the commercial aim is to move value rather than the specific asset, selling the shares in the company that holds the property attracts stamp duty on shares at 0.5% rather than SDLT at up to 17%. It is not always right — the buyer takes on the company’s whole history — but where you control both sides it deserves a proper look before you commit to an asset transfer.
We fund connected-party and intra-structure transfers regularly. Speak to us before the transfer is agreed, while the structure can still be changed.
Related services
Most buy-to-let mortgages, and some forms of commercial, bridging and development finance, are not regulated by the Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on a loan secured against it. Giles Finance is authorised by the Financial Conduct Authority (No. 726857) to transact regulated mortgages. Giles Finance is a trading style of Giles Finance & Consultancy Services. This article is general information, not advice.