In this year’s Finance Bill, Chancellor Gordon Brown has once again demonstrated his favour for Islamic finance by reducing and simplifying the tax burden on Muslim investors and businesses. The process of making allowances and exemptions for Islamic finance, which started in 2003 and culminated in this year’s Bill, has ensured that the UK is at the forefront of the global expansion of Islamic finance. Specifically, the Finance Bill has extended the stamp duty land tax (SDLT) reliefs (which were previously only available to individuals) to companies and trusts. This simple measure is set to have a significant impact on the UK commercial property market.
In the Finance Act 2003, murabaha and ijarah structures were given special SDLT status. Murabaha, or cost-plus financing, is where the bank buys the property and then sells it to the customer at an increased price which is paid by the customer to the bank in fixed instalments over a fixed period of time. Ijarah means leasing and describes the structure whereby the bank buys the property and leases it to the customer who then purchases the property from the bank at the end of the term of the lease. As these structures involve multiple transactions they can give rise to multiple SDLT charges. The Finance Act 2003 addressed this problem by allowing these transactions to be treated for SDLT purposes as if they were a simple purchase (or refinance) and therefore no additional SDLT would be payable.
