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HMRC internal manual

Stamp Duty Land Tax Manual

From
HM Revenue & Customs
Updated
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Scope: What is chargeable: Land transactions: The Commonhold and Leasehold Reform Act 2002

Commonhold is a way of owning freehold properties which have communal facilities, such as a block of flats.

A commonhold consists of individual units, such as flats, together with common parts such as lobbies and staircases. Each unit-holder owns the freehold interest in his or her unit and is a member of the commonhold association which owns the freehold interest in, and manages, the common parts.

The intention is to provide an alternative to the long-established practice whereby individual flats in a block are held on long leases granted by the freeholder, either a third party or a company controlled by the flat-owners, and the freeholder manages the common parts.

Commonhold applies only in England & Wales.

Commonhold was created by the Commonhold and Leasehold Reform Act 2002 which was enacted on 27 September 2004.

Commonhold interests have to be registered at the Land Registry. There are more details of commonhold, and of the registration procedure, in Land Registry Practice Guide 60 (LRPG060), which can be found within the Land Registry website at .

There are two ways in which commonhold land can be registered.

  • Registration with unit-holders. This occurs when an existing freehold and/or leasehold development, for example, an owner-occupied block of flats, is converted to commonhold. The individual owners or lessees will become unit-holders and will each own a freehold interest in their own unit, and any leases they formerly held will come to an end. Each unit-holder will become a member of the commonhold association, which will take over ownership and management of the common parts.
  • Registration without unit-holders. This is designed for new developments. The property is registered as commonhold but the developer continues to be the registered proprietor until the first unit is sold. At that point the unit that is sold is registered in the name of the unit-holder and the common parts are registered in the name of the commonhold association. Further unit-holders are registered as further units are sold.

The Stamp Duty Land Tax treatment of commonhold

The registration of the common parts in the name of the commonhold association and the registration of a unit in the name of a unit-holder are all land transactions, because they are the acquisition of a chargeable interest by operation of law.

There will generally be no chargeable consideration for any of these land transactions.

The exception, which might apply in particular to the acquisition of the common parts by the commonhold association, is where the transferee is a company or other body corporate ‘connected with’ the transferor for the purposes of CTA10/S1122.

In that case the consideration is deemed to be the market value of the interest transferred by virtue of FA03/S53.

In these circumstances HM Revenue & Customs accept that the market value of the common parts held by the commonhold association is negligible. This is because the commonhold association is not able to deal in or profit from the common parts and is under an obligation to maintain and insure them.

Registration without unit-holders is not a land transaction, neither is it a land transaction when land registered as commonhold without unit-holders ceases to be so registered before any units are sold.

In order for registration with unit-holders to take place the consent of all the unit holders and the landlord, if there is one, is needed. A payment made to obtain consent is not chargeable consideration for a land transaction.

The extinguishment of a unit-holder’s lease when the unit is registered in his or her name is not an exchange because the lease is extinguished by operation of law. The extinguishment is not consideration for the registration.