UK Treasury To Remove Tax Impediment To Sharia Mortgages

by Jason Gorringe, Tax-News.com, London

26 February 2003

The UK Treasury is said to be close to concluding a reform in the stamp duty laws that has thus far impeded many potential homebuyers from taking out so-called 'Muslim mortgages', that is, home loans that are compliant with Sharia law.

Under Sharia law, Muslims are forbidden to either pay or receive interest on loans, and this can make the process of purchasing property in the UK expensive and complicated. At present, when an Islamic mortgage is taken out, the lender buys the property and in effect becomes a middleman, either selling it on to the buyer at a higher price, or selling it at the same price and charging the purchaser a form of rent.

Consequently, a house currently purchased using this method is liable for double the amount of stamp duty that is normally paid on a single property, and the Treasury intends to amend the law so that stamp duty is paid only once on such transactions, rather than twice. It is possible that this could be introduced in time for the upcoming Budget. This, it is hoped, will act as an incentive for more companies to sell Muslim mortgages in the UK. At present, only the West Bromwich Building society in conjunction with the United Bank of Kuwait offers such a product.

Presently, the Islamic House of Britain, backed by the Qatar International Islamic Bank is applying for a license from the FSA to be able to offer a range of Sharia-compliant financial products. It plans to float on the AIM (Alternative Investment Market) in the next 6 months and hopes to raise £50 million in investment.

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