31/05
17 March 2005
New measures increase fairness for Muslim banking products
Shari’a compliant financial products were given a boost by two new measures announced in yesterday’s Budget:
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Corporation Tax, Income Tax and Capital Gains Tax rules will be changed. This will allow the Islamic equivalents of loans and deposit accounts - based on Murabaha and Mudaraba contracts - to receive the same tax treatment as equivalent banking products.
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The removal of multiple payments of Stamp Duty Land Tax (SDLT) will be made more accessible in Scotland and will cover a newly available Shari’a compliant product, known as Diminishing Musharaka. This will help house-buyers who want to finance their purchase without taking an interest-bearing mortgage.
The new measures – designed to increase the choices available to consumers – follow a number of prominent developments in the UK Islamic finance, including a significant increase in the number of providers and the range of available Shari’a compliant products.
Speaking today, Financial Secretary to the Treasury, Stephen Timms MP said:
“Increasing fairness in financial markets for all consumers is central to the Government’s aims. These measures will provide a clear and fair tax treatment for providers and consumers alike. I look forward to working with the industry and consumer groups to further this agenda in the future.”
Notes for editors
1. Shari’a compliant current accounts, savings accounts, and house purchase facilities are now offered by both Islamic and high street banks. They do not involve the payment or receipt of interest, but are based around different structures, such as sharing profits and gains.
2. Shari’a compliant house purchase schemes do not involve mortgages at interest, and instead usually involve the finance provider purchasing the house for resale to the customer. This could give rise to more than one charge to Stamp Duty Land Tax (SDLT). Finance Act 2003 removed this double charge for house purchases based on Murabaha and Ijara contracts.
3. Diminishing Musharaka involves initial joint ownership by the bank and the customer. With each payment made, partial transfer of the interest occurs. Previously this would have triggered multiple charges to SDLT.
4. Tax law is not based around Shari’a concepts, but around the form of the contract. Shari’a compliant products are available to both Muslims and non-Muslims so all consumers should have the opportunity to use them.
5. Media enquiries should be addressed to Will Straw at the Treasury press office on 020 7270 4420.
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