Do you pay SDLT twice when buying a buy-to-let through Sharia finance?

Introduction

People often search for this issue when they are buying a property through an Islamic or Sharia-compliant finance product and are told that the bank may buy the property and then lease it back. That can make the transaction look as though there are two land transactions, which naturally raises the question: is Stamp Duty Land Tax (SDLT) charged twice, or can any of it be reclaimed?

The short answer is that the legislation is designed to prevent double SDLT in qualifying alternative property finance arrangements. In a standard qualifying structure, SDLT is not meant to be charged twice simply because the finance is Sharia-compliant. A separate question is whether the property is so defective that it is not suitable for use as a dwelling at the effective date of the transaction. That can affect the SDLT treatment, but the legal threshold is now relatively high.

The Question

A buyer was planning to acquire a buy-to-let property through a company using a Sharia-compliant home purchase plan, specifically a diminishing musharaka style arrangement with a rent-only option. The buyer had heard that, in some cases, SDLT may be exempt or reclaimed where an alternative finance provider is involved.

The buyer also understood that two SDLT5 certificates might be produced during the process and wanted to know whether that meant SDLT had first to be paid and then reclaimed. The property itself appeared to need only light updating and redecoration, although up-to-date safety certificates had not yet been provided before completion.

Nick’s Explanation

Nick’s central point was that alternative finance rules in the Finance Act 2003 are intended to stop double taxation in Sharia-compliant property finance arrangements.

In anonymised form, his explanation was:

“In theory, the structure can look like two transactions, because the financial institution acquires the property and then grants the customer rights back under the finance arrangement. But the legislation contains reliefs and charging rules designed so that SDLT is not paid twice just because of that structure.”

He also explained that, in practice, the bank may still require the customer to fund the SDLT cost, even where the legal charge falls on the financial institution within the structure.

On the property condition point, Nick said that only a genuinely serious condition issue is likely to help. Mere redecoration, missing certificates, or the possibility of some repair work would not usually be enough. He concluded that, on the facts provided, the property did not appear to be uninhabitable and so there was no obvious basis for treating it as non-residential for SDLT purposes.

The Law

SDLT is charged under the Finance Act 2003. Special rules were introduced for alternative property finance so that Islamic finance arrangements are not disadvantaged compared with conventional mortgage lending.

For qualifying alternative finance arrangements, the legislation recognises that the structure may involve more than one legal step, but it modifies the SDLT result so there is no unfair double charge merely because a bank must acquire and then re-grant rights in the property as part of a Sharia-compliant model.

The relevant provisions are found in Part 4 of the Finance Act 2003, including the alternative property finance rules. Which exact section applies depends on the structure used, but diminishing musharaka and similar arrangements are covered by this part of the legislation.

A separate line of SDLT cases concerns whether a property is “residential property” because it is “suitable for use as a dwelling” at the effective date of the transaction. If it is not suitable for use as a dwelling, it may fall outside residential rates and into non-residential or mixed property treatment, depending on the facts.

However, the courts have made clear that this is a demanding test. In an uninhabitable or not suitable for use case, the condition thresholds are now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Analysis

There are really two separate issues here.

First, does Sharia-compliant finance create two SDLT charges?

Usually, no. Although the legal structure may involve the financial institution acquiring the property and then entering into a lease or co-ownership style arrangement with the customer, the alternative finance provisions are there to prevent SDLT being charged twice on what is, economically, a single financed acquisition.

That means a buyer should not assume that the existence of two documents, or even two SDLT5 certificates in the conveyancing process, automatically means SDLT has been overpaid and can be reclaimed. SDLT5 certificates are evidence of filing and processing, not proof that a repayment is due.

Second, can the property be treated as non-residential because it is not suitable for use as a dwelling?

That depends on the actual physical state of the property at the effective date of the transaction. The test is not whether the property is dated, unattractive, missing paperwork, or in need of routine work. The question is whether it is truly unsuitable for use as a dwelling at that time.

Examples that often fail to meet the threshold include:

• cosmetic disrepair;
• old kitchens or bathrooms;
• redecoration needs;
• uncertainty about certificates before testing;
• repair works that are inconvenient but not fundamental to occupation.

Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the bar is now high. The courts look for serious defects that mean the building is not suitable for residential use at the relevant date, not simply a property that a prudent buyer would wish to renovate before letting out or moving into.

On the facts described here, the property needed only a redecoration and there was no confirmed evidence of major structural danger or complete failure of essential services. That is unlikely to be enough to displace residential SDLT treatment.

If the buyer is purchasing through a company, the higher rates for additional dwellings will usually need to be considered as well. In the example discussed, the likely SDLT figure was calculated by reference to the company purchase rules and the 3% surcharge framework applicable to residential acquisitions.

Outcome

The practical conclusion is:

• qualifying Sharia-compliant alternative property finance should not lead to SDLT being charged twice merely because of the finance structure;
• the buyer may still bear the economic cost of the SDLT through the bank’s completion requirements;
• the existence of two SDLT5 certificates does not, by itself, create a right to a refund;
• on these facts, there is no clear basis for claiming that the property was non-residential because it was uninhabitable.

So the likely result is that normal residential SDLT treatment applies, including any higher rates that apply to a company buy-to-let purchase.

Practical Steps

If you are assessing a similar purchase, the sensible next steps are:

1. Confirm the exact finance structure with your conveyancer and lender. Ask whether the arrangement is being treated as qualifying alternative property finance under the Finance Act 2003.
2. Ask your conveyancer to identify who is making the SDLT return or returns, and why. The filing mechanics do not necessarily determine who bears the economic cost.
3. Do not assume a refund is available just because more than one SDLT-related document is produced.
4. If you think the property was not suitable for use as a dwelling, gather evidence from the effective date: survey reports, photographs, contractor opinions, utility evidence, and any proof that essential facilities were unusable.
5. Apply the current case law cautiously. After Mudan, only serious defects are likely to succeed.
6. For company purchases, check the higher residential rates carefully before exchange so the SDLT budget is correct from the outset.

Conclusion

Buying through a Sharia-compliant property finance arrangement does not usually mean you pay SDLT twice and then reclaim it later. The legislation is intended to prevent that result. A refund or reduced SDLT outcome is only likely if there is some separate and valid reason, such as the property genuinely not being suitable for use as a dwelling at completion, and that is now a difficult argument to run successfully.

Legal References Used

• Finance Act 2003, Part 4
• Alternative property finance provisions in the Finance Act 2003
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799
• HMRC, Practice Guide 69: Islamic financing

This page was last updated on 22 March 2026.

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