Purchase of freehold by tenants of flats

(Draft guidance can be found under Exercise of Collective Rights).

The following Q&A covers the commonly asked questions about this measure, which is at clause 79 of the Finance Bill. More information is in Budget Note 46.

What does the measure do?
It amends the existing relief for leaseholders of flats at section 74 Finance Act 2003, to allow it to be claimed by nominees or appointees of leaseholders exercising a statutory right collectively to purchase the freehold of their block.

How does the amended relief work?
Leaseholders of flats, exercising their statutory rights, collectively acquire a single freehold interest in the block through a nominee or appointee (which may be one or more individuals or a company). They cannot independently purchase the freehold of their own flat.

Without relief, the rate of Stamp Duty Land Tax on the transaction is determined by the total consideration for the transaction. This means each leaseholder may pay a higher rate of Stamp Duty Land Tax than would be due if they were able to purchase the freehold of their own flat.

The relief sets the rate of Stamp Duty Land Tax by reference to the total consideration divided by the number of flats whose leaseholders are participating in the purchase. This brings the rate of tax closer to the rate which would be payable if leaseholders could purchase the freehold of their own flat.

Why was the measure needed?
The existing relief applies only to purchases by a statutory 'Right to Enfranchise' (RTE) company. However, the legislation providing for RTE companies has never been brought into force, so no such company can be established.

What are the statutory rights of leasehold enfranchisement?
There are two:

  • a right of first refusal if the landlord wishes to sell the freehold (under Part 1 Landlord & Tenant Act 1987)
  • a right to require the landlord to sell the freehold if required to do so by the leaseholders of at least half the flats in the block (under Chapter 1 of Part 1 Leasehold Reform, Housing and Urban Development Act 1993)

When does the amended relief take effect?
It applies to purchases of the freehold where the effective date of the transaction (normally the date of completion) is on or after Budget Day, 22 April 2009.

Can the relief be claimed on behalf of leaseholders who have bought their freehold before Budget Day?
No, unless a contract was entered into before Budget Day and is completed on or after that day without having been 'substantially performed' for Stamp Duty Land Tax purposes