TSEM5735 | Trusts for particular purposes: flat management companies - freehold owners of property

Under the terms of sale of a freehold property (a covenant of some sort) the freeholders may have to pay into a service charge fund or sinking fund. The funds may be paid to an individual, a company, a trust or an unincorporated association. Such an arrangement does not come within Section 42 LTA 1987 as it is not under the terms of a lease.

Alternatively there may be no provision to create a service charge fund or sinking fund but the freeholders together decide to form one. They may decide to pay those contributions to an individual, a company, a trust or an unincorporated association. Again this is a private arrangement not governed by Section 42 LTA 1987 and the tax treatment depends on what the freeholders decide is going to hold the funds.