In line with its commitment to consult on the matter ahead of the introduction
of new stamp duty land tax (SDLT) rules for alternative financial investment
bonds, HM Revenue & Customs has issued a consultation on the tax treatment
of sukuks, which are a type of bond vehicle that is compliant with Sharia'a
law.
Launching the consultation, the UK tax authority explained that:
"The Government is keen to promote the growth of the alternative finance
market in the UK. In order to achieve this it is necessary to deal with certain
tax barriers preventing the development of the industry. "
"The tax treatment of the issue of a sukuk based upon Sharia'a compliant
financial products is in some areas uncertain and in others produces anomalous
results. These anomalies can put providers of Sharia’a compliant products
at a commercial disadvantage. This particular measure addresses Stamp Duty Land
Tax (SDLT) barriers to issuing sukuk."
It went on to add that:
"There are two policy objectives for Islamic finance. For business we
wish to establish London as a gateway for international Islamic finance. For
individuals, we wish to ensure that everybody, irrespective of their beliefs,
has access to competitively priced financial products and that there is equal
taxation of these products. Sukuk issuance (Islamic bonds) can help achieve
both of these objectives."
Commenting on the policy options being considered with regard to creating designated
tax rules for sukuk offerings, HMRC revealed that the two key options under
consideration were either to do nothing, or to provide a framework to enable
a sukuk market to develop in the UK. It suggested that:
"Choosing the first would mean missing opportunities to develop Islamic
finance in the UK, including addressing SDLT barriers to business and would
allow tax inequality of alternative finance products to continue."
"The second option is preferred. The clarification of tax rules will encourage
the development of the alternative finance industry. A competitive market in
these products could substantially benefit London as a global financial centre,
generating further investment."
An impact assessment has been published alongside the consultation. Responses
are invited on the matter until 18th August.
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