Freeholder, Leaseholder – can you be both?

Freeholder, Leaseholder – can you be both?

10:25 AM, 23rd March 2023, About A year ago 14

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Hello, After setting up a property development company, my first project was a large extended terraced house. The property was in poor condition and I was fortunate enough to buy it cash. I was granted permission to convert it into two flats which I intended to keep and rent out.

Once the conversion work was complete, I needed the Freeholder (my company) to issue a Lease for each flat in order to pursue a mortgage.

My solicitors informed me that I could not be both the Freeholder and the Leaseholder. I needed to set up a second company into which I transferred the Freehold for £1, upon which the new company issued my first company two new leases.

My tax adviser is now questioning this and believes there may be a tax implication in transferring the Freehold and/or issuing of the leases.

As my solicitors undertook all the legal work, and they say they have done this multiple times in the past for other clients, I have put my tax advisers directly in touch with the solicitors to come to agreement as to how this is presented on my tax submission.

Note: tax submission needed for the new company even though it will go into dormant status.

The questions appeared to be:

• What should the value of the Freehold be – nominal £1 or market value?
• What is the value of the two Leases – equal to the value of the Freehold?
• Does the value of the Freehold change once Leases have been granted and if so to what?

My solicitor’s belief is, it all cancels itself out, however the tax adviser raises two points:

  1.  There are two separate entities involved in the transaction
  2. The mortgage company has placed a value on the each leasehold, against which they are providing a mortgage.

Does anyone else have experience of this type of arrangement?

Thank you,


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Judith Wordsworth

13:06 PM, 23rd March 2023, About A year ago

The Freehold company cannot be dormant as has a duty to insure the building; obligations to the Leaseholders that have to be carried out eg repairs, maintenance etc etc
The Freehold value is the insurance value of the building, including the land it stands on, not the insurance rebuild cost.
The value of the 2 Leaseholds are likely to be different. If one is ground floor with sole access to the garden.
The Freehold value changes not just when the Leases are granted and should be revalued every 5 years even if just for insurance purposes.
There are 3 entities ie the Freeholder, and 2 Leaseholders even if you are one and the same.
So for each mortgage there is a Freeholder and a Leaseholder.
At some point in time you might want to sell one of the Leaseholds or even just the freehold. Or make the Leaseholders have equal share of the Freehold. But the freehold will still be a separate entity, with its own Title Number and documentation at HMLR, it has to be.


13:23 PM, 23rd March 2023, About A year ago

My view on this would be to issue 2 leases of 999 years and zero ground rent and hold them in the company you purchased the propery in. Then the freehold would not be worth a huge amount.

You could then transfer the freehold (at market value) into another company and you would not need to pay SDTL as it would be worth less than £40,000 (the SDLT threshold)

Your leaseholds should be worth more than the orginal freehold as you have created value by doing the work. These can be valued by an estate agent or make a guess yourself by comparing with similar properties - then go for a mortgage on these values.

You really need to end up with 2 companies - one to hold freeholds and one to hold leaseholds.

I am a landlord, not an accountant or solicitor and have never created leases, but have diddled around with freeholds and leaseholds in the past. Check it out with the professionals before taking my word for it as I am not certain on the process of creating leases.


14:26 PM, 23rd March 2023, About A year ago

Reply to the comment left by JB at 23/03/2023 - 13:23
The leases have already been issued from the second to the first company. If they hadn't you could not issue them within the original company as they have to be in different entities.

Judith said neither can be dormant. This is not necessarily true as it is the service charge money which fulfils the obligations not the company money. A lot of RMCs are dormant.

I would have done it the other way round and created the new company for the leases then no need for transfer. Why did you do that unnecessary transaction? It would have been for market value so the £1 is not the value to use for tax.

Your solicitor may be thinking that the principle of mutuality applies - that you can't be taxed on transfer to yourself. However by putting them in two companies you cannot use this for tax avoidance.

Not very helpful of me to say this I know but you should have got tax advice before doing any transfer. Your solicitor may have done it before but they are wrong to say there is no tax liability.


15:12 PM, 23rd March 2023, About A year ago

Reply to the comment left by Crossed_Swords at 23/03/2023 - 14:26
Ah yes - sorry I missed the bit that the freehold had already been transferred to another company before the leases were created. I think this transfer should have been at market value and SDLT would be due on this - as its a 'purchase' by the 2nd company.

Transferring the leaseholds back to the 1st company may also be considered a purchase with SDLT due again? I really hope that's not the case.


18:45 PM, 23rd March 2023, About A year ago

So many questions - all jumbled up, despite solicitors.
No, you cannot be a freeholder and a leaseholder in respect of the same property.
Historically, it had to do with the mystical concept of seisin.
Today, it is the doctrine of merger.
One would have to see the documents: the TR1s and the companies involved.
There is Co A who buys a dilapidated property, then converts it into 2 flats.
For CGT, at the very least, you have the purchase price, legal costs, planning and conversion costs.
This is your acquisition cost.
You then sold this to CoB for £1.
Clearly, the sale is at undervalue.
Land Registry will not register anything without a SDLT form being completed.
How was this form completed?
Clearly, the sale was not at open market value.
Consequences follow.
CoB then granted 2 Leases to CoA.
CoB before the grant owns the freehold property.
The value is the open market value.
After the grant of the 2 Leases (assuming all valid, and LR have accepted the transactions), Co B owns the freehold reversion, which is a valuation matter requiring a Chartered Surveyor at the very least).
Co A now owns 2 leasehold flats: valued on an open market basis.

Chris Bradley

11:43 AM, 25th March 2023, About A year ago

Out of curiosity why couldn't the freehold have been split to share of freehold as opposed to only a leasehold?


14:37 PM, 25th March 2023, About A year ago

Reply to the comment left by Chris Bradley at 25/03/2023 - 11:43
Are you asking me?
In the instant case, the facts, as given, which I find difficult to accept, if solicitors were involved are inter alia: Co A which owned valuable freehold property converted into 2 self-contained flats transferred or sold this to Co B for £1.
There has to be a SDLT form.
I would love to see this.
I further assumed that the shareholders of Co A and Co B were different.
If not, the veil of incorporation can be lifted by HMRC and LR.
Let us assume the Examiner at the LR did not notice the same shareholders and somehow passed the SDLT form and proceeded to register Titles for 2 separate Leases.
Now the shareholders in Co A (with the 2 Leases) can own the shares in Co B, which owns the freehold reversion.
I am aware the LR is taking a long time to deal with the applications.
I would bet the LR has not registered the Titles to the 2 Leases as yet.
Also, there are solicitors and solicitors.
There are now Legal Executives who are entitled to do Conveyancing.
I am not saying anything against anybody.
Or, the facts as stated are not facts.
Something is wrong.

Chris Bradley

14:46 PM, 25th March 2023, About A year ago

Reply to the comment left by SCP at 25/03/2023 - 14:37
I was just asking anyone
Why when there is 2 flats why the flats cannot be held as leasehold with share of freehold by the same person/entity/ company


15:16 PM, 25th March 2023, About A year ago

Reply to the comment left by Chris Bradley at 25/03/2023 - 14:46
Here beginneth a lesson in history and land law.
Let us accept that in general, you cannot have a freehold flat.
It must be a leasehold flat.
If the same person owns a leasehold and the freehold, then the doctrine of merger applies, and the Leasehold becomes a Freehold.
If it is a given that the Flat must be a Leasehold, then there must be an entity that owns the freehold reversion and is separate from the Leaseholders.
The Leaseholders may well own the entity owning the freehold reversion.
It is a long time ago that I read the original case on this point.
The finest legal minds debated about seisin. They said there would be confusion if the same person owned the leasehold as well as the freehold.
Where is the seisin now?

Chris Bradley

15:35 PM, 25th March 2023, About A year ago

Reply to the comment left by SCP at 25/03/2023 - 15:16
I see a lot of flats up for sale as leasehold with share of freehold. Which I assume is bought by one person, not 2 entities

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