Service charge money is held on trust.
In short
Service charge money paid by leaseholders is held on trust for them under section 42 of the Landlord and Tenant Act 1987, by whoever receives it, including a residents' or RTM company. It is not the company's money. Keep it in its own bank account in the company's name, never mixed with ground rent, the company's own funds or anyone's personal account, and spend it only on what the leases allow.
What does held on trust mean?
That the money belongs, in law, to the leaseholders who paid it, for the purposes the leases set out. The company holds it as trustee. Using it for anything else, or mixing it with other money so it cannot be traced, is a breach of trust that the directors may have to answer for.
Does the service charge need its own bank account?
In practice, yes. The 1987 Act also contains provisions for holding these funds in a designated account; whatever their commencement position, a separate account in the company's name, used only for service charge money, is the only safe way to run it. A director's personal account must never be used.
Is a reserve fund held on trust too?
Yes. Reserve fund contributions are service charge money, held on the same trust, and should be shown separately in the accounts so leaseholders can see what is set aside for future works.
Is service charge money taxed?
Service charge receipts held on trust are not the company's income for corporation tax. Interest earned on the fund is taxable, and ground rent the company receives as landlord is its own income and outside the trust. The position depends on the company's circumstances, so take an accountant's advice.
Where Servanda comes in
Servanda never holds or moves money. It reads the trust account's statement, matches each payment to the flat that made it, puts each bill against its budget heading, and keeps ground rent out of the service charge figures.
Everything Servanda doesThe law
The legislation is the authority; this page is a plain summary for England, checked on 2026-10-23. Wales and Scotland have their own rules. Take advice on any particular building.