Changes in legislation relating to Islamic finance products have been announced as part of the March Budget, following discussions initiated by Islamic Bank of Britain - the UK’s only totally Sharia’a compliant bank. The changes relate to the taxation of Islamic financial products, including profit earned on deposit accounts. It will effectively put these on a level playing field with other comparable non-Islamic financial products.
Today Islamic Bank of Britain welcomed the changes, as a major step forward in the development of Islamic financial products for the UK’s 1.8 million Muslims.
Islamic deposit accounts are operated under the Sharia’a compliant principle of Mudaraba, which is based on a profit sharing arrangement, whereby customers provide the funds and the bank provides the expertise to use those funds and generate a profit. Such profit is then shared between the bank and its customers.
Up until now, income tax has not been withheld from profit paid on Sharia'a compliant savings accounts but the profit has been fully taxable in the hands of UK customers. The changes will mean that lower rate tax on ‘profits’ can be deducted at source, as happens with conventional savings accounts. The result is that some customers, who may currently be required to complete tax returns, won’t have to, and it will simplify the process for others.
The changes will also clarify the taxation of profit charged on Islamic financing facilities based on the principle of Murabaha, whereby the bank buys the goods and services and then sells these to the customer at a mark-up profit but on deferred payment terms.
Michael Hanlon, managing director of Islamic Bank of Britain, comments: “As the only UK financial institution currently offering a Sharia’a compliant deposit account, and with plans to offer a wide range of retail financial products, we felt that the issue of taxation needed to be addressed and we contacted the Treasury in 2004. Initially a special policy unit was set up to discuss directly with us and our advisors the taxation issues arising from Islamic financial products. Earlier this year the forum was expanded with The Treasury arranging special meetings to obtain the views of the wider Islamic and banking community, resulting in these changes. We consider this to be excellent news for UK Islamic finance and the Muslim community and are proud to have played a part in these changes. We are also thankful to the government for taking such a keen interest in development of the Islamic banking market in the UK.”
The announcement builds on changes made by the Government in 2003 relating to Islamic home finance products, which tackled the issue of double stamp duty. The current changes extend the relief for double stamp duty to cover a new Sharia’a compliant property finance product offered in the UK. More developments are anticipated in the future which will go further towards ensuring that Islamic financial products are treated in a comparable way to non-Islamic products.
Tax, accounting and legal support is being given to Islamic Bank of Britain by accountant KPMG’s Banking and Capital Markets tax practice and law firms Norton Rose and Clifford Chance.
Islamic Bank of Britain has branches in London, Birmingham and Leicester, and is now offering its products nationwide, via a direct banking service.
For more information on Islamic Bank of Britain’s products and direct banking service call
0845 6060 786 or visit www.islamic-bank.com.
Islamic Bank of Britain’s Products and Services
Islamic Bank of Britain is now offering a broad range of products and services via its direct banking service and its branches.
These include a current account, savings accounts and a personal finance facility. Other products will follow later this year.
New Current Account
The Sharia’a compliant current account allows customer to manage their money without compromising their principles.
It is an interest-free bank account, with customers neither paying nor receiving interest, and there is no minimum balance required. It comes with a debit card (or cash card subject to status) and cheque book. Funds can be withdrawn through branches of Islamic Bank of Britain, through any Cirrus ATM and via direct account transfer to another bank account.
For more information on Islamic Bank of Britain products and direct banking service call
0845 6060786 or visit www.islamic-bank.com.
Issued on behalf of Islamic Bank of Britain by McCann Erickson PR. McCann House, Highlands Road, Shirley, Solihull, B90 4WE