Buying UK property under Sharia law

Key points

• Some financial institutions have developed Sharia-compliant mortgage structures to help individuals align their financial arrangements with their religious beliefs.
• There are three main types in Islamic finance: Diminishing Musharaka (joint ownership) Ijara wa Iqtina (lease arrangement) and Murabaha (sale and margin).
• UK tax law has progressed over the past decade to facilitate the acquisition of UK property under Islamic finance by introducing legislation to tax the sharia-compliant mortgage arrangements parallel to a conventional western mortgage.
• The fundamental changes introduced prevent a double charge to stamp duty land tax and ensure that any ‘alternative finance returns’ received in place of interest (such as rental income) receive the same tax treatment as interest for income tax and corporation tax purposes.
• But a capital gains tax trap remains. Sharia-compliant investors that refinance their mortgage can often unknowingly trigger a CGT disposal which is particularly...