Currently, there can be different tax consequences for assets acquired using “alternative finance” products compared with more conventional loans. How is the government looking to end the inconsistency, and how can you get involved?

Alternative financing arrangements are predominantly used by those of Islamic faith, as the payment of interest is prohibited. Such arrangements are structured to allow the consumer to finance a property purchase, or refinance a property without paying interest. In order to do so, the lender uses various methods to charge for the service without charging interest. This could involve, e.g. the consumer renting the property for a period of time, and then purchasing the property at the end of the term, such that, overall, the lender makes a profit.

A consultation has been launched seeking views on how to level the playing field between the tax consequences of using conventional and alternative financing. Typically, a property owner can refinance their property without incurring tax charges. However, where alternative finance arrangements are used to refinance a property, due to the nature of the arrangements, a capital gains tax liability can arise. In addition, capital allowances may be lost, which is not the case with conventional financing. Currently, this would only be an issue for landlords or those with second homes, as you do not usually pay capital gains tax on your main home.

If you wish to participate, your response should be sent by 9 April 2024.

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit or call 01233 653500.