Tax simplification for alternative finance

The measure

The UK government is planning to introduce legislation to simplify the tax treatment of alternative finance, specifically refinancing arrangements. The goal is to create a level playing field between alternative finance (such as diminishing shared ownership arrangements) and conventional financing (such as traditional mortgages). 

The key changes include: 

• Individuals and companies using qualifying alternative finance will no longer be subject to capital gains tax, corporation tax or income tax charges where the same charge would not apply for those using conventional financing arrangements. 
• Annual tax on enveloped dwellings (ATED): alternative finance used to purchase residential properties will not be subject to ATED in situations where a comparable conventional financing arrangement would not be liable. 

Who will be affected?

• Individuals and businesses using, or considering, alternative finance products for refinancing. 
• The UK Islamic finance property sector, which heavily utilises diminishing shared ownership arrangements.  

When will the measure come into effect?

This measure applies to qualifying arrangements entered into on or after 30 October 2024. It will be legislated for in Finance Bill 202425.