Alternative finance — refinancing
Published 30 October 2024
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This publication is available at https://www.gov.uk/government/publications/changes-to-alternative-finance-tax-rules-refinancing/fdfcbaa0-b447-423b-9ddb-361460669d0a
Who is likely to be affected
Individuals and companies using alternative finance.
General description of the measure
This measure makes changes to the tax rules that apply to alternative finance. It ensures that where an existing asset is used as a means to raise finance using alternative finance, the tax outcome is broadly the same as conventional financing.
Policy objective
The policy objective of this measure is to ensure a level playing field across conventional and alternative of finance.
Under the current tax rules, entering into certain types of alternative finance arrangements can result in tax consequences that do not arise under conventional financing. This issue mostly affects properties that do not qualify for Capital Gains Tax Private Residence Relief, such as rental properties, second homes and commercial properties.
Background to the measure
The government announced its intention to amend the alternative finance legislation at Autumn Budget 2024.
Detailed proposal
Operative date
This measure applies from 30 October 2024 and applies to qualifying arrangements entered into on or after that date.
Current law
The tax legislation dealing with alternative finance can be found at:
- Part IV, Chapter 4, of the Taxation of Chargeable Gains Act (TCGA) 1992
- Part 10A Income Tax Act (ITA) 2007
- Part 6, Chapter 6 of the Corporation Tax Act (CTA) 2009
Proposed revisions
Legislation will be introduced in Finance Bill 2024-25, amending the TCGA 1992, ITA 2007 and CTA 2009. That legislation will provide that where a person wishes to use alternative finance to raise capital using an asset they already own, a tax charge will not arise.
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 | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
The measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure primarily ensures that a disposal for Capital Gains Tax purposes does not occur when a beneficial interest in an asset is transferred by an individual to an alternative finance provider as a condition of funding. Similar changes are being made to parallel provisions found in the ITA 2007 and CTA 2009. This outcome creates fairness and certainty for individuals as it ensures that they will not face a tax charge should they wish to use this form of finance.
Customer experience is expected to remain broadly the same as this measure does not alter how individuals interact with HMRC.
There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
This measure will benefit all individuals and businesses who wish to use alterative finance to raise funding. 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 impact on businesses or civil society organisations who apply for alternative finance to raise funding. Businesses will now be able to apply for alternative finance without it resulting in a tax charge.
One-off costs may include familiarisation with the changes. There are not expected to be any further one-off or continuing costs. Customer experience for businesses and civil society organisations is expected to remain broadly the same as it does not significantly alter how they will interact with HMRC.
Operational impact (£ million) (HMRC or other)
There will be no operational impacts or associated costs for HMRC in implementing this change.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communications with affected taxpayer groups.
Further advice
If you have any questions about this change, contact the Capital Gains Tax policy team by email: [email protected].