HMRC SDLT: SDLTM00285 – Scope: What is chargeable: Land transactions: The Commonhold and Leasehold Reform Act 2002

Principles and Concepts of Chargeable Land Transactions

This section of the HMRC internal manual outlines the principles and concepts related to chargeable land transactions under the Commonhold and Leasehold Reform Act 2002. It provides guidance on what constitutes a chargeable transaction.

• Defines chargeable land transactions.
• Explains the impact of the Commonhold and Leasehold Reform Act 2002.
• Details the criteria for determining chargeability.
• Offers examples of transactions that fall under this category.

Understanding Commonhold and Stamp Duty Land Tax (SDLT)

What is Commonhold?

Commonhold is a way of owning properties like flats that have shared areas. This arrangement is different from traditional leasehold ownership.

– Ownership Structure: In a commonhold setup, there are individual units, like flats, which are owned outright by unit-holders. In addition to their units, they share ownership of communal areas, such as:
– Lobbies
– Staircases

– Managing Common Areas: Each unit-holder is part of the commonhold association. This association is responsible for managing and maintaining the shared areas.

– Purpose: Commonhold was introduced to provide a modern alternative to the long-standing practice of leasehold ownership, where flats are leased from a freeholder who is responsible for the communal areas.

– Where Commonhold Applies: Commonhold is applicable only in England and Wales.

Legislation Behind Commonhold

Commonhold was established by the Commonhold and Leasehold Reform Act 2002, which came into effect on 27 September 2004.

– Registration Requirement: Commonhold interests must be registered with the Land Registry. For further information on registration and commonhold itself, refer to the Land Registry Practice Guide 60, which can be accessed at this link.

How to Register Commonhold Land

There are two main ways to register commonhold land:

1. Registration with Unit-Holders:
– This occurs when a freehold or leasehold development, like a block of flats owned by individuals, converts to commonhold.
– Each owner becomes a unit-holder, owning the freehold interest in their flat.
– Previous leases are cancelled, and the owners join the commonhold association that then manages the shared areas.

2. Registration without Unit-Holders:
– This method applies to new developments. The developer initially remains the owner of the property, registered as commonhold.
– Once the first unit is sold, that unit is registered in the name of the new unit-holder, while the common areas are registered under the commonhold association.
– More unit-holders are registered as additional units are sold.

Stamp Duty Land Tax (SDLT) and Commonhold

When registering commonhold properties, it’s important to understand the implications of Stamp Duty Land Tax.

– Land Transactions Defined:
– The registration of common parts under the commonhold association and the individual unit’s registration are considered land transactions. This occurs as they involve the acquisition of chargeable interests by law.

– Chargeable Consideration:
– Typically, there is no chargeable consideration for these types of land transactions.
– However, an exception may apply if the commonhold association acquires common parts from a connected company, as defined in CTA10/S1122.
– In such cases, the consideration is considered to be the market value of the interest transferred according to FA03/S53.

– Market Value of Common Parts:
– HMRC views the market value of the common parts owned by the commonhold association as negligible. This is because:
– The commonhold association can’t sell or profit from these areas.
– The association has a duty to maintain and insure these common parts.

– Registration without Unit-Holders:
– If property is registered as commonhold without units being sold, this does not count as a land transaction.
– Furthermore, if the commonhold status is removed before any units are sold, this is also not seen as a land transaction.

Requirements for Registration with Unit-Holders

To successfully register with unit-holders, certain conditions must be met:

– Consent Needed:
– The agreement of all unit holders and the landlord is required for registration to proceed.
– If there is a need to make a payment to get this consent, that payment does not count as chargeable consideration for a land transaction.

– Lease Extinguishment:
– When a unit-holder’s flat is registered in their name, any lease they held for that flat ends automatically by law.
– This lease ending is not classified as an exchange, nor is it considered as a form of consideration for registration purposes.

Summary of Key Points

– Commonhold allows for shared ownership and management of communal areas in residential developments like blocks of flats.
– The two methods of registering commonhold vary depending on whether units already exist or if it is a new development.
– Understanding the implications of Stamp Duty Land Tax is essential when navigating commonhold registration.
– Consent from all parties involved is crucial for the registration to be valid.

For more information, you can view the original guidance on commonhold and SDLT on the official HMRC website or related resources.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM00285 – Scope: What is chargeable: Land transactions: The Commonhold and Leasehold Reform Act 2002

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