The Alternative Finance Order 2022
Published 6 May 2022
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Who is likely to be affected
Financial Conduct Authority (FCA)-regulated Home Purchase Plan providers and their customers.
Regulated peer-to-peer platforms and parties to certain alternative finance arrangements that are facilitated by these peer-to-peer platforms.
General description of the measure
This measure will widen the scope of the alternative finance arrangements provisions.
The changes will enable Home Purchase Plans provided by regulated providers who do not currently fall within the definition of a financial institution for alternative finance arrangements purposes to receive the same tax treatment as similar products provided by financial institutions.
The changes will also ensure that certain alternative finance arrangements facilitated by regulated peer-to-peer platforms receive similar tax treatment to conventional peer-to-peer financial arrangements for direct tax purposes.
Policy objective
The measure contributes towards providing a level playing field between conventional financial products and alternative finance arrangements, and between different types of providers of alternative finance arrangements.
The changes are designed to bring regulated Home Purchase Plans and certain alternative finance arrangements through regulated peer-to-peer platform into the scope of the alternative finance arrangements rules.
Background to the measure
This measure was announced in the Autumn 2021 Tax Administration and Maintenance command paper published on 30 November 2021.
The draft instrument was published for technical consultation between 11 February 2022 to 11 March 2022.
Detailed proposal
Operative date
The measure will have effect on and after the date the legislation comes into force.
Arrangements entered into between 30 November 2021 and the date the statutory instrument comes into force will be eligible for the new treatment, but only in relation to events occurring after that date.
Current law
Current legislation on the tax treatment of alternative finance arrangements that will be affected by this measure is included in:
- Part 10A of Income Tax Act 2007
- Chapter 4 of Part 4 of Taxation of Chargeable Gains Act 1992
- Chapter 6 of Part 6 of Corporation Tax Act 2009
Consequential amendments will also be made to section 173A of the Income Tax (Earnings and Pensions) Act 2003.
Proposed revisions
The current alternative finance arrangements provisions require that one or both of the persons who enter into a purchase and resale arrangement are financial institutions. This measure will expand the scope of the purchase and resale arrangements provisions to allow arrangements that are facilitated by a regulated peer-to-peer platform to come within the rules.
The current alternative finance arrangements provisions require that the first owner of a diminishing shared ownership arrangement is a financial institution. This measure will expand the meaning of diminishing shared ownership arrangements to include arrangements entered into by regulated Home Purchase Plans providers, and to include scenarios where the arrangement is facilitated by a regulated peer-to-peer platform.
Summary of impacts
Exchequer impact (£million)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| — | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is likely to encourage the provision of regulated Home Purchase Plan products in the property finance market, and consequently improve the availability and affordability of finance to individuals for their home purchases, especially for those prohibited from using conventional mortgage products due to their religion.
Customer experience is expected to remain broadly the same as this measure does not alter how individuals interact with HMRC. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure will allow regulated Home Purchase Plan products and certain alternative finance arrangements facilitated by peer-to-peer platform to be treated in the same way as conventional mortgages and loans for tax purposes.
This will contribute towards providing a level playing field for alternative finance arrangements and conventional finance products. It is anticipated that those prevented from using conventional financing products due to their religion will have more options in obtaining finance as a result of this change.
Impact on business including civil society organisations
This measure is likely to encourage the provision of peer-to-peer financing, and consequently improve Sharia-compliant financing options for businesses.
This measure is expected to have a negligible impact on the administrative burdens for businesses. For businesses wishing to enter the Islamic finance market, one-off costs would include familiarisation with the changes.
There are not expected to be any continuing costs. Customer experience is expected to remain broadly the same as this measure does not alter how businesses interact with HMRC.
This measure is not expected to impact civil society organisations.
Operational impact (£m) (HMRC or other)
There are no financial consequences for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with the finance industry.
Further advice
If you have any questions about this change, contact Liang Tang by emailing: financialproductsbai@hmrc.gov.uk.
Declaration
John Glen MP, Economic Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.