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

Higher-rate SDLT in section 72A alternative finance cases

Where residential property is bought through certain alternative finance arrangements under section 72A, the financial institution is ignored when working out whether the higher SDLT rate for certain non-natural persons applies. This means the tax position is tested by looking at the other party instead, and the 17 per cent rate can still apply unless a statutory exclusion is available.

• These rules apply to some two-stage alternative finance arrangements involving residential property.
• For SDLT on the first transaction, the law treats the purchase as if the financial institution was not one of the buyers.
• The focus is therefore on the other party, such as a company or other non-natural person.
• If that party would fall within the higher-rate charge, the 17 per cent SDLT rate applies unless an exclusion applies.
• Possible exclusions must be checked carefully, for example where the property will be used in a property rental business.
• In practice, advisers need to confirm section 72A applies, identify the relevant residential interest, and then test whether any exclusion is available.

Scroll down for the full analysis.

Higher-rate SDLT and alternative finance arrangements involving residential property

This page explains how the higher SDLT rate for certain non-natural persons can apply where residential property is bought using an alternative finance arrangement. The point matters because, in these cases, the presence of a financial institution in the initial purchase does not prevent the higher rate from applying.

What this rule is about

Some alternative finance arrangements involve two stages. In the first stage, a financial institution and another person are parties to the acquisition of the land. Special SDLT rules then adjust how that first transaction is treated.

The source material deals with cases under section 72A where the property interest acquired in the first transaction includes a higher threshold interest in residential land. In broad terms, that means the kind of residential property interest that can fall within the special higher-rate SDLT charge for certain non-natural persons.

The legal issue is straightforward: when working out the SDLT on that first transaction, should the financial institution’s involvement affect whether the higher rate applies? The official answer is no. The legislation requires the transaction to be tested as if the financial institution were not one of the purchasers.

What the official source says

The official material says that similar special rules apply to alternative finance arrangements under section 72A where the major interest in land acquired in the first transaction includes a higher threshold interest.

For calculating the SDLT due, the first transaction is treated as though the financial institution was not one of the purchasers. The practical result is that attention turns to the other person involved in that first transaction.

If that other person is someone who would be liable to the higher rate of SDLT, the 17 per cent rate applies unless that person falls within one of the exclusions from the higher-rate charge. The source gives the example of property that is to be used in a property rental business.

What this means in practice

You do not decide the higher-rate issue by looking at the first transaction in the ordinary way and asking whether one of the purchasers is a bank or other financial institution. Instead, for this purpose, the legislation tells you to ignore the financial institution as a purchaser.

That means the SDLT analysis focuses on the non-financial-institution party. If that person is within the category of persons who would be subject to the higher rate for certain residential acquisitions, the transaction is charged at 17 per cent unless an exclusion applies.

This is an anti-avoidance style result. It prevents the higher-rate rules being sidestepped simply because a financial institution is involved in the structure of an alternative finance arrangement.

It also means that conveyancers and advisers should not assume that alternative finance automatically changes the SDLT outcome in the buyer’s favour. The special treatment may produce the same higher-rate result that would have arisen if the relevant person had acquired the property without the financial institution being counted as a purchaser.

How to analyse it

A sensible way to approach the issue is:

• Identify whether the arrangement is one to which section 72A applies.
• Identify the first transaction under section 72A(1)(a).
• Check whether the major interest acquired in that transaction includes a higher threshold interest in residential property.
• For the purpose of calculating SDLT, treat the transaction as if the financial institution were not one of the purchasers.
• Ask whether the remaining person involved is a person who would be liable to the higher rate for certain non-natural persons.
• If yes, consider whether any statutory exclusion from the higher-rate charge applies.

The key question is not simply “was a financial institution involved?” The key question is “if the financial institution is ignored, would the other person be within the higher-rate charge, and if so, is there an exclusion?”

Example

Illustration: a company enters into an alternative finance arrangement under section 72A to acquire a residential property. The first transaction involves both the financial institution and the company. The property interest acquired is one that falls within the higher-threshold category.

To work out the SDLT on that first transaction, the financial institution is ignored as a purchaser. The analysis then focuses on the company. If the company is the kind of person who would fall within the higher-rate charge, the 17 per cent rate applies unless the company qualifies for an exclusion, such as an exclusion connected with use in a property rental business.

Why this can be difficult in practice

The source material is short and technical. The difficult parts usually lie outside this paragraph itself.

First, you need to be sure that the arrangement is in fact within section 72A. Not every finance structure will be.

Second, the higher-rate charge depends on whether the interest acquired is a higher threshold interest in residential property. That can require careful classification of the property and the interest being acquired.

Third, even if the non-financial-institution party would otherwise be within the higher-rate charge, an exclusion may apply. Whether an exclusion is available can be fact-sensitive. The source mentions property rental business as an example, but the precise conditions for any exclusion must be checked in the legislation.

Finally, the source is a manual statement, not the legislation itself. It explains HMRC’s view of how the statutory rule operates, but the legal answer ultimately depends on the wording of the Finance Act provisions.

Key takeaways

• In certain section 72A alternative finance cases, the first transaction is tested as if the financial institution were not a purchaser.
• If the other party would fall within the higher-rate charge for certain non-natural persons, the 17 per cent SDLT rate applies unless an exclusion is available.
• The main practical tasks are to confirm the arrangement falls within section 72A, identify the relevant residential interest, and check any exclusion carefully.

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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