Alternative finance — changes to alternative finance tax rules — Annual Tax on Enveloped Dwellings
Published 30 October 2024
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Who is likely to be affected
Financial institutions and clients financing the purchase of UK residential property using alternative finance.
General description of the measure
This measure makes changes to the Annual Tax on Enveloped Dwellings (ATED) rules for purchases financed using alternative finance. It extends existing alternative finance provisions to ensure an ATED charge does not arise in an alternative finance arrangement where the client is an individual.
The measure also makes a consequential change to the ATED legislation which is needed as a result of the introduction of the Wales Act to ensure that ATED treatment is the same for anyone entering into alternative finance arrangements across the UK.
Policy objective
The measure will ensure there is a level playing field for tax purposes across both alternative and conventional forms of finance throughout the UK.
Background to the measure
This measure was announced at Autumn Budget 2024.
Detailed proposal
Operative date
This measure applies from 30 October 2024.
Current law
The rules relating to ATED can be found under Part 3 of the Finance Act (FA) 2013. Sections 157 and 157A FA contain the relevant rules relating to alternative finance.
Proposed revisions
Legislation will be introduced in Finance Bill 2024-25 to amend Part 3 FA 2013. The legislation will extend the scope of Sections 157 and 157A FA 2013 so that it applies to all clients of these types of alternative finance arrangements, not just companies. It also makes consequential amendments by inserting a new Section 157B to ensure that the rules work for properties in Wales following devolution of land transaction taxes to the Welsh Government.
Summary of impacts
Exchequer impact (£ million)
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 |
|---|---|---|---|---|---|
| Negligible | - 5 | - 5 | - 5 | - 5 | - 5 |
These figures are set out in table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure will impact individuals purchasing property through alternative finance arrangements by providing certainty that ATED charges do not arise where alternative finance is used, the way that ATED charges do not arise under similar conventional finance arrangements.
The measure is not expected to impact on family formation, stability or breakdown.
Customer experience is expected to remain the same as it does not affect how customers interact with HMRC.
Equalities impacts
This measure will benefit individuals and financial institutions that wish to use alternative finance as a means of funding residential property purchases. The measure particularly benefits individuals who hold religious beliefs that prohibit the receipt and payment of interest, such as the Islamic faith, which mean that other financing products cannot be used.
Impact on business including civil society organisations
This measure is expected to have a negligible administrative impact on the small number of financial institutions which offer alternative finance. It will also provide certainty that ATED charges do not arise where alternative finance is used, where those charges would not arise under conventional financing arrangements. One-off costs will include those financial institutions having to familiarise themselves with the change. There is expected to be no continuing costs.
Customer experience is expected to remain the same as it does not affect how customers interact with HMRC.
The measure is not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
It is not expected that there will be any operational costs in implementing this measure.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through engagement with stakeholders and information collected in returns.
Further advice
If you have any questions about this change, contact the HMRC Stamp Taxes team by email: [email protected].