Last updated: 14 October 2026
What changed in the tax rules for alternative finance refinancing?
Finance Act 2025 changed the rules so that refinancing an asset you already own through alternative finance, such as a Sharia-compliant diminishing shared ownership arrangement, no longer triggers a capital gains tax disposal. Before the change, transferring a share of a property to the finance provider as a condition of funding could be treated as a sale, creating a CGT bill that wouldn’t arise with a conventional mortgage. The new rules apply to qualifying arrangements entered into on or after 30 October 2024.
What alternative finance is
Alternative finance arrangements are designed to comply with principles that prohibit interest, such as Islamic finance. Common types include:
| Arrangement | How it works |
| Diminishing shared ownership (diminishing musharaka) | Bank and customer co-own the asset; customer buys the bank’s share over time and pays rent on it |
| Purchase and resale (murabaha) | Bank buys the asset and sells it to the customer at a higher price, paid in instalments |
| Ijara (lease) | Bank owns the asset and leases it to the customer |
The problem the change fixes
When someone wanted to raise money against a property they already owned, the alternative finance provider usually needed to take a beneficial interest in it. Under the old rules, that transfer could be a disposal for CGT, especially for properties without private residence relief, such as buy-to-lets, second homes and commercial property.
The new rules
- Transferring an interest to the finance provider under a qualifying refinancing isn’t treated as a disposal for CGT
- The lease granted back to you isn’t treated as an acquisition or disposal
- Replacing one arrangement with another (switching provider) doesn’t trigger a disposal
- Parallel rules apply for income tax and corporation tax
Example
Yusuf owns a buy-to-let flat worth £300,000, bought for £150,000. In 2026, he raises £120,000 through a diminishing shared ownership arrangement, transferring a 40% share to the bank. Under the old rules, the transfer could have been a disposal of 40% of the flat, creating a gain of £60,000. Under the new rules, there’s no disposal, so no CGT, just as there wouldn’t be with a conventional mortgage.
Tax relief on the “rent” or profit element
For landlords, the profit element of alternative finance is treated like mortgage interest. For residential lets, it gets a 20% tax credit rather than a full deduction. For companies and commercial property, it’s usually fully deductible.
Stamp duty land tax
SDLT has its own reliefs for alternative property finance, to prevent double charges when the bank buys and sells the property. Check these with your conveyancer.
Before refinancing
Ask your finance provider to confirm the arrangement is a qualifying diminishing shared ownership arrangement under the new rules, and keep the agreement with your tax records. If you are switching from an older arrangement, take advice on how the transitional position applies to you.
Frequently asked questions
Does the change apply to my home?
Yes, though your main home usually has private residence relief anyway.
What about arrangements before 30 October 2024?
The new rules don’t apply to them.
Do companies benefit?
Yes, under the corporation tax rules.
Is alternative finance taxed more heavily than a mortgage?
The aim is for the outcome to be broadly the same.
Related: mortgage interest on let properties, corporate landlords and SDLT on transfers to limited companies.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with property finance and tax. See our landlord accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
