A special commissioner decided that, until the provisions of s. 121 and 122 of the Commonhold and Leasehold Reform Act 2002 were brought into force, the right to collective enfranchisement was exercisable by tenants through a nominee company and a right to enfranchise (RTE) company could not exercise a right of collective enfranchisement (although a company meeting the definition of an RTE company could exercise such a right as a nominee purchaser).

Although the present taxpayer met the definition of an RTE company it was not an RTE company within the meaning of FA 2003, s. 74(4)(a) and the chargeable transaction entered into by the taxpayer was not entered into by an RTE company in pursuance of a right of collective enfranchisement within the meaning of s. 74(4)(b). Accordingly, the taxpayer was not entitled to collective enfranchisement relief.

Facts

The taxpayer, a company formed to exercise the right to collective enfranchisement of a block of 133 flats whose members were most of the flat owners, appealed against two closure notices issued by the Revenue. The first related to the acquisition by the taxpayer of the freehold interest in the property and amending the taxpayer's land transaction return to indicate that collective enfranchisement relief was not available, that stamp duty land tax was due at the rate of four per cent and that the amount of tax due was £22,100. The second closure notice related to the acquisition by the taxpayer of the headlease of the property and indicated that collective enfranchisement relief was not available, that stamp duty land tax was due at the rate of three per cent and that the amount of tax due was £11,025. Thus the total amount of tax due was £33,125. The taxpayer appealed.

It was agreed that the acquisition by the taxpayer of the freehold interest and the headlease were chargeable transactions. The taxpayer argued that there should be relief from stamp duty land tax on the ground that it met the conditions in FA 2003, s. 74 relating to collective enfranchisement by leaseholders since it fell within the statutory definition of an RTE company in new s. 4A of the Leasehold Reform, Housing and Urban Development Act 1993. The Revenue argued that the relief was not available to the taxpayer which was not an RTE company as defined in s. 74(4)(a) and which had not entered into a chargeable transaction in pursuance of a right of collective enfranchisement as defined in s. 74(4)(b). That was because the definition of an ‘RTE company’ in s. 74(4)(a) provided that the phrase had the meaning given by s. 4A of the 1993 Act and s. 4A was inserted in the 1993 Act by s. 122 of the Act which had not been brought into force. The taxpayer submitted that although it was not possible for an RTE company to exist for the purposes of the 1993 Act it was possible for a company to meet the definition of an RTE company for the purposes of the Act.

Issue

Whether the acquisition by the taxpayer of the freehold interest and the headlease of the property was a transaction entered into by an RTE company in pursuance of a right of collective enfranchisement within the meaning of FA 2003, s. 74(1), applying the definitions in s. 74(4).

Decision

The special commissioner (Dr Nuala Brice) (dismissing the appeal) said that s. 74 had no application until the provisions of s. 121 to 122 of the 2002 Act were in force. The relevant provisions indicated that the intention of Parliament was to provide that, once the relevant parts of s. 121 to 125 of the 2002 Act were brought into force, the right of collective enfranchisement could only be exercised by an RTE company which met all the statutory requirements. Before those provisions came into force the previous provisions remained so that the right to collective enfranchisement could be exercised by a proportion of tenants acting through a nominee purchaser. Until then, there could be ‘no right of collective enfranchisement exercisable by an RTE company’ within the meaning of s. 74(4)(b) of FA 2003.

Accordingly, when the taxpayer acquired the freehold interest and the headlease of the property, that was not a transaction entered into by an RTE company in pursuance of a right of collective enfranchisement within the meaning of s. 74(1) of FA 2003, applying the definitions in s. 74(4).

(2007) Sp C 648.
Decision released 26 November 2007.