HMRC has launched a consultation ‘Tax Simplification for Alternative Finance’. This explores proposals to address the difference in Capital Gains Tax (CGT) treatment when property is refinanced using alternative, rather than conventional, finance methods.


Alternative finance arrangements are a method of raising finance that typically involves the sale, purchase and renting of assets in circumstances where conventional financing would involve lending with the payment or receipt of interest.

When using conventional finance arrangements, an individual refinancing a property that they own, using it as collateral, is not making a disposal for Capital Gains Tax (CGT) purposes. Similarly, such refinancing is not a Disposal event for capital allowance purposes.

A common method of alternative finance for property is Diminishing Shared Ownership (DSO) arrangements.

Where an individual wishes to refinance using DSO arrangements, they would typically sell an interest in the property to a financial institution, who would then advance the finance required.

This transaction will represent a Disposal for CGT purposes, potentially resulting in tax being payable, unless a relief such as Private Residence Relief (PRR) for Residential property applies. In addition, a disposal event for capital allowance purposes could arise on the refinancing where Plant and machinery allowances or the Structures and Buildings Allowance have been claimed. Future capital allowances may also be reduced.

It is these tax disparities between conventional and alternative refinance arrangements that the consultation seeks to address in its proposals.

Consultation proposals

For alternative finance arrangements, the consultation proposes that where certain conditions are met, for CGT purposes, the person obtaining the finance (P) would treated as having owned the interest in property throughout the period of the arrangements, and neither P nor the financial institution are treated as having made any disposal or acquisition.

It is proposed that for a refinancing arrangement to be exempt from a CGT charge in this manner, the arrangement must include:

  • A transfer of an interest in land from P to the financial institution.
  • A leaseback of the interest from the financial institution to P.
  • A set period of time for the arrangement, for example, 25 years.
  • An agreement that, at or before the end of the lease, the whole of the interest in land is returned to P by the financial institution, either in tranches over the life of the arrangement or following one final payment.

The consultation notes that consideration must be given to what happens in the case of default, and how agreements should be monitored should a default occur.

In addition, robust anti-avoidance rules will be required to prevent arrangements seeking to exploit the rules.

From a capital allowance perspective, views and evidence are sought as to whether issues around disposal events and/or the loss of future allowances arise in practice and cause issues, or act as a barrier, when refinancing.

If it is found that changes for capital allowance purposes are necessary, the proposal would be to adopt a solution for alternative refinancing arrangements that is similar to the proposal for CGT.

The consultation closes at 11:59 pm on 9 April 2024. Responses can be sent by email.

Consultation questions

Capital Gains: practical implications

  1. Are there any other implications which may arise for CGT on entering into alternative refinancing arrangements which are not considered in Chapter 4?

Capital Gains: proposals for legislative change

  1. Do you agree with the conditions described in Chapter 5 and do you think they could cause any unforeseen issues that could undermine our intent?

Capital Gains: scope and eligibility

  1. Should alternative refinancing arrangements be completed in a set period of time? If so, what would be the appropriate period?
  2. Do you think the proposed rules should be limited to arrangements where the finance provider is a financial institution or extended to home purchase plan providers?

Capital Gains: disposals and avoidance

  1. Under what circumstances would a financial institution dispose of its interest in the property to a third party? Do you have any view on what tax implication this should have on P?
  2. Do you have any views on the requirement for P to bring a disposal value into account on the transfer of the property by the finance provider to a third party, and how would this work in practice?
  3. Do you have any views on how the proposed rules will deal with default events or agreements that otherwise fail to complete?
  4. What avoidance circumstances do you think are likely to arise in respect of the proposed solution and what further safeguards against avoidance would you propose?

Capital allowances: practical implications

  1. Do the capital allowances implications described in Chapter 6 arise in practice and cause issues for those seeking to refinance using alternative finance arrangements? If so, how often are arrangements entered into such that those implications arise?
  2. Do the capital allowances implications described in Chapter 6 prevent those seeking to refinance using alternative finance from doing so?
  3. Are there any other implications which may arise for capital allowances on entering into alternative finance arrangements which are not considered in Chapter 6?

Impact assessment

  1. If the government makes the changes proposed, how many refinancing arrangements using alternative finance products each year would be entered into?
  2. Do you have views, and can you provide evidence, on the extent to which DSO arrangements are used by businesses?
  3. Do you have any comments on the administrative burdens required to comply with the proposed rule?

Equalities assessment

  1. Do you envisage any equality impacts from the proposals that the government should take account of?

Useful guides on this topic

CGT: How to calculate a capital gain or loss
How do you calculate a capital gain or loss? What costs are deductible? Can you set losses against capital gains?

Residential Property gains
The definition of 'Residential Property' is important for Capital Gains Tax (CGT) purposes when considering how a gain is reported, when tax is paid and the rates of tax that apply. What is a Residential Property gain? 

PRR: Private Residence Relief
What is Private Residence relief (PRR)? What are the qualifying conditions? Can you claim relief on two homes? How do you claim PRR? Can you claim PRR if you develop your garden? 

Plant & machinery: Allowances
What capital allowances are available on plant and machinery? How do you calculate them? What are qualifying activities?

Structures & Buildings Allowance (SBA)
Who can claim the Structures and Buildings Allowance? What expenditure is eligible? How to make a claim?

Disposal values & rules
What is a disposal for capital allowance purposes? What is the tax consequence of a disposal? What value needs to be accounted for on a disposal?

External link

HMRC consultation: Tax Simplification for Alternative Finance’