Understanding SDLT Higher Rate for Non-Natural Persons in Alternative Finance Arrangements

SDLT higher rates in alternative finance arrangements

When residential property is bought through certain alternative finance arrangements, the SDLT higher-rate test does not look only at the bank or financial institution that buys the property first. Instead, it also looks at the person who is meant to receive the property later, so the tax result is closer to what would happen in a normal purchase.

• This special treatment applies to alternative finance arrangements covered by sections 71A, 72 and 73 of the Finance Act 2003.
• The first purchase is not automatically charged at the higher rate just because the initial buyer is a company or other financial institution.
• The higher rate can still apply if the person due to receive the property under the later transfer would meet the higher-rate ownership condition, for example if that person is a company.
• If the eventual recipient would qualify for a relevant relief or exception, such as in some property rental business cases, the first purchase may also avoid the higher rate.
• Not every exclusion carries across: HMRC says the exclusion for financial institutions acquiring dwellings in the course of lending does not apply in this way.
• In practice, you must check the statutory arrangement, identify the first and second transactions, and test the intended end buyer’s position carefully.

Scroll down for the full analysis.

SDLT higher rates and alternative finance arrangements

This page explains how the higher rate of SDLT for certain non-natural persons applies when residential property is bought through an alternative finance arrangement. The key point is that SDLT does not look only at the financial institution that buys the property first. It also looks at who is meant to end up with the property under the later transfer. That matters because the tax result is intended to match the position as closely as possible to an ordinary purchase without alternative finance.

What this rule is about

Some alternative finance arrangements involve a financial institution buying the property first and then transferring it to the person who will ultimately own it. The SDLT legislation treats these arrangements in a special way. Without special rules, the initial purchase by the financial institution could trigger the higher rate simply because the institution is a company or another person that would normally fall within the higher-rate rules for certain non-natural persons.

The rule described in the HMRC manual is aimed at preventing that automatic result. Instead, for the first purchase in the arrangement, the higher-rate test is redirected towards the person who is intended to receive the property under the later transfer.

The manual says this applies to the alternative finance arrangements within sections 71A, 72 and 73 of Finance Act 2003.

What the official source says

HMRC says that special rules apply where the major interest acquired in the first transaction includes a higher threshold interest in residential property. The purpose is to make sure the correct amount of SDLT is paid on that first transaction by taking account of the person who will receive the property in the second transaction.

According to the manual:

• the higher rate does not apply to the first transaction merely because the purchaser in that first transaction is a financial institution that is a company or another person normally within the higher-rate charge;
• the higher rate does apply to the first transaction if the ownership condition is met by reference to the second transaction;
• that includes cases where the person who is to receive the property under the second transaction is a company, or the purchase is by or on behalf of a partnership with a corporate member, or for the purposes of a collective investment scheme;
• the higher rate does not apply to the first transaction if the person who is to receive the property under the second transaction would satisfy a relevant relieving condition, for example because the property would be used in a property rental business;
• however, this carve-out does not extend to the exclusion for financial institutions acquiring dwellings in the course of lending.

What this means in practice

In practice, you should not stop the analysis at the first legal buyer if that buyer is a bank or other financial institution under an alternative finance structure. The tax treatment of the first acquisition depends on the intended end-user of the property.

This means:

• if the eventual recipient would be within the higher-rate rules, the first acquisition can also be charged at the higher rate;
• if the eventual recipient would fall outside the higher-rate charge because a relevant condition is met, the first acquisition should not be charged at the higher rate on that basis;
• the financial institution’s own status as a company is not, by itself, enough to trigger the higher rate on the first acquisition.

The rule is designed to align the SDLT result with the substance of the arrangement. If the end result is effectively a corporate or similar acquisition of residential property, the higher rate is intended to bite. If the end result would not have attracted the higher rate, the use of alternative finance should not create a harsher outcome just because a financial institution temporarily holds the property.

How to analyse it

A sensible way to approach the issue is:

1. Confirm that the arrangement is one of the alternative finance arrangements covered by Finance Act 2003 sections 71A, 72 or 73.
2. Identify the first transaction and the second transaction for that arrangement.
3. Check whether the first transaction involves a major interest in land that includes a higher threshold interest in residential property.
4. Ask who is intended to receive the property under the second transaction.
5. Test whether that person, or that acquisition, would meet the ownership condition for the higher-rate charge.
6. If so, treat the first transaction as within the higher rate.
7. If not, consider whether the intended recipient would satisfy a relevant condition that means the higher rate would not apply.
8. Do not assume that every exclusion carries across. The manual specifically says this approach does not apply to the exclusion for financial institutions acquiring dwellings in the course of lending.

The practical question is therefore not just “Who buys first?” but “Who is the real intended acquirer for SDLT purposes under this type of arrangement?”

Example

Illustration: a bank acquires a dwelling as the first step in an alternative finance arrangement and will later transfer it to a company under the second transaction. The bank is only the temporary legal buyer. On the HMRC approach described here, the higher rate can apply to the bank’s first acquisition because the person intended to receive the property under the second transaction is a company.

By contrast, if the person intended to receive the property under the second transaction would meet a relevant condition that would prevent the higher rate applying, the first transaction is not charged at the higher rate on that basis.

Why this can be difficult in practice

The manual gives the basic direction, but the detailed application can still be fact-sensitive.

• The arrangement must actually fall within the statutory alternative finance provisions. If it does not, this special treatment may not apply.
• The meaning of the ownership condition and any relevant relieving condition must be tested carefully against the legislation, not assumed from broad descriptions.
• The manual gives an example of property rental business use, but whether a particular case satisfies the relevant condition depends on the statutory requirements.
• The manual also warns that one exclusion does not carry across: the exclusion for financial institutions acquiring dwellings in the course of lending. That means readers should not assume that because a bank is involved, the higher rate is automatically switched off.
• Where partnerships, corporate members, or collective investment schemes are involved, the classification of the purchaser and the purpose of the acquisition may need close attention.

The main difficulty is that the first buyer and the economically intended buyer are different people. The legislation and HMRC’s guidance deal with that by looking through the temporary first acquisition, but only in the specific way the statutory rules allow.

Key takeaways

• In alternative finance arrangements, the SDLT higher-rate analysis for the first purchase is not based only on the financial institution that buys first.
• The intended recipient under the second transaction is central to deciding whether the higher rate applies.
• A relevant condition that would protect the intended recipient can also prevent the higher rate applying to the first transaction, but not all exclusions carry across.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding SDLT Higher Rate for Non-Natural Persons in Alternative Finance Arrangements

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