Relief for Leaseholders Exercising Right to Buy Freehold of Flats Explained

SDLT relief for leaseholders buying a freehold together

When flat leaseholders use a statutory collective right to buy their building’s freehold together, a special SDLT relief can reduce the tax rate used. The full purchase price is still taxed, but the rate is worked out by first dividing that price by the number of participating flats. This relief only applies in the right statutory circumstances, can be blocked by the Schedule 4A higher-rate charge, and must be claimed in the SDLT return.

• The relief is for qualifying flat leaseholders who collectively buy the freehold under a statutory right, usually through a nominee purchaser or appointee.
• To set the SDLT rate, divide the total price for the freehold by the number of participating flats, then apply that rate to the full price actually paid.
• The count is based on participating flats, not the total number of flats in the building and not the number of individual leaseholders.
• This can reduce SDLT significantly if the divided figure falls into a lower SDLT band than the full purchase price would on its own.
• The relief is not available if the Schedule 4A higher-rate charge applies, for example where a company purchaser is subject to the 15% rate.
• The relief applies for transactions with an effective date on or after 22 April 2009 and must be claimed in the land transaction return using relief code 25.

Scroll down for the full analysis.

SDLT relief when flat leaseholders buy the freehold together

This page explains a specific SDLT relief for leaseholders of flats who act together to acquire the freehold of their building under a statutory collective right. The relief does not remove the transaction from SDLT altogether. Instead, it changes how the SDLT rate is worked out so that the tax better reflects the fact that several leaseholders are effectively buying together.

What this rule is about

In some blocks of flats, qualifying leaseholders have a statutory right to buy the freehold collectively. In practice, the freehold is usually transferred in one transaction to a nominee purchaser or appointee acting for the participating leaseholders. That nominee may be one or more individuals or a company.

Without special treatment, SDLT would normally be calculated by looking at the full purchase price for the freehold as one amount. That can produce a higher SDLT rate than would have applied if each participating leaseholder had been able to buy their own share separately. This relief is intended to deal with that problem.

What the official source says

HMRC’s manual states that, where leaseholders of flats exercise a statutory right to purchase the freehold of the block collectively, SDLT is calculated using a special rate-setting rule.

The total consideration for the freehold is divided by the number of flats leased by tenants who are participating in the exercise of the right. The SDLT rate that would apply to that divided amount is then applied to the total consideration for the actual transaction.

The manual explains that this relief is available for transactions with an effective date on or after 22 April 2009. Before that date, the relief was said to apply only to purchases by a statutory right to enfranchise company, although the relevant provision for such companies was not brought into force.

The manual also states that the relief is not available if the higher rate under Schedule 4A applies. It gives the example that, if the consideration exceeds £500,000 and the purchaser is a company, the SDLT rate is 15%.

According to the manual, the nominee or appointee must claim the relief in the land transaction return using relief code 25.

What this means in practice

The key practical point is that this relief changes the rate calculation, not the amount paid for the property. You still look at the full consideration given for the freehold. But to decide which SDLT rate band applies, you first divide that total by the number of participating flats.

This can significantly reduce the SDLT charge. If the divided figure falls into a lower rate band, that lower rate is then applied to the whole purchase price.

The number that matters is the number of flats whose tenants are participating, not simply the total number of flats in the building. If some leaseholders do not join in, their flats are not counted for this purpose.

The manual also makes clear that the relief is blocked where the Schedule 4A higher rate applies. The example given by HMRC is a company purchaser paying more than £500,000, in which case the 15% SDLT rate applies instead. So it is important not to assume that using a company nominee automatically preserves access to the relief.

How to analyse it

A sensible way to approach this issue is to ask the following questions:

• Is this a collective purchase of a freehold by leaseholders of flats exercising a statutory right?
• Is the freehold being acquired in a single transaction by a nominee or appointee acting for those leaseholders?
• What is the total consideration for the freehold?
• How many flats are held by tenants who are actually participating in the exercise of the right?
• What SDLT rate would apply if the total consideration were divided by that number?
• Does any rule prevent the relief from applying, in particular the Schedule 4A higher-rate charge mentioned in the manual?
• Has the relief been positively claimed in the land transaction return using the correct relief code?

One detail in the HMRC example is worth noting. The count is by participating flats, not by participating people. If one leaseholder holds two flats and both are participating, those are counted as two flats.

Example

Illustration: a nominee purchaser acquires the freehold of a block for £500,000 on behalf of the leaseholders of eight participating flats. The block contains ten flats in total, but only eight flats are participating. One leaseholder happens to hold two of those participating flats.

Under the HMRC manual, the £500,000 is divided by 8, giving £62,500. You then identify the SDLT rate that applies to £62,500 and apply that rate to the full £500,000 consideration. In HMRC’s example, the rate is 0%, so no SDLT is payable.

Why this can be difficult in practice

The main difficulty is usually identifying whether the transaction fits the statutory collective-enfranchisement framework that the relief is aimed at. The relief is not described as applying to every joint freehold purchase by flat owners. The official material ties it to the exercise of a statutory right.

Another practical issue is counting the participating flats correctly. The relevant number is not necessarily the total number of flats in the building, and not necessarily the number of individual leaseholders. Getting that count wrong can alter the SDLT rate.

There can also be difficulty where a company is used as nominee purchaser. The manual expressly says the relief is not available if Schedule 4A applies. That means the structure of the purchase and the identity of the purchaser may matter.

Finally, this is a claim-based relief. If the return is completed without claiming it, the SDLT may be calculated on the ordinary basis instead.

Key takeaways

• This relief is designed for statutory collective freehold purchases by flat leaseholders acting through a nominee or appointee.
• It works by dividing the total price by the number of participating flats to find the SDLT rate, then applying that rate to the whole price.
• The relief is not available where the Schedule 4A higher-rate charge applies, and it must be claimed in the SDLT return.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Relief for Leaseholders Exercising Right to Buy Freehold of Flats Explained

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