Growing Is­lamic fi­nance firms lobby Bri­tish gov­ern­ment for tax re­lief

The Daily Star (Lebanon) - - BUSINESS - By Bernardo Viz­caino

Firms in­volved in Is­lamic fi­nance are lob­by­ing the Bri­tish gov­ern­ment for tax re­forms, ar­gu­ing that the treat­ment of some shariah-com­pli­ant struc­tures is hin­der­ing their growth.

Bri­tain has ac­tively pur­sued Is­lamic fi­nance to be­come the Western world’s big­gest hub for it and banks are now seek­ing to en­sure tax par­ity in ar­eas such as mort­gage re­fi­nanc­ing as they com­pete headon with their con­ven­tional peers.

Is­lamic fi­nance for­bids in­ter­est pay­ments, and trans­ac­tions of­ten re­quire mul­ti­ple ti­tle transfers of un­der­ly­ing as­sets, which can trig­ger dou­ble or even triple tax charges.

More than 20 firms, in­clud­ing Gate­house Bank, Bank of Lon­don and The Mid­dle East, Abu Dhabi Is­lamic Bank and Qatar Is­lamic Bank of­fer Is­lamic fi­nan­cial prod­ucts in Bri­tain.

The coun­try has pre­vi­ously ad­dressed the ad­verse tax treat­ment for Is­lamic bonds and res­i­den­tial mort­gages, help­ing Is­lamic bank­ing as­sets reach more than 5 bil­lion pounds (al­most $6.7 bil­lion) in 2016, while Lon­don has at­tracted over 65 list­ings of Is­lamic bonds worth a com­bined $48 bil­lion, lobby group TheCi­tyUK said.

But this has cre­ated con­cerns over re­fi­nanc­ing mort­gages or switch­ing them from a con­ven­tional to an Is­lamic bank, which can trig­ger cap­i­tal gains taxes, said Samir Ala­mad, head of shariah com­pli­ance and prod­uct devel­op­ment at Birm­ing­ham-based Al Rayan Bank, which is owned by Qatar’s Mas­raf Al Rayan.

“This is the more press­ing is­sue as it is af­fect­ing Is­lamic banks and their cus­tomers,” said Ala­mad, one of those lob­by­ing Bri­tish tax au­thor­i­ties. Taxes on in­vest­ment prop­erty and com­mer­cial fi­nance also need clar­i­fi­ca­tion, he added.

In the short term, the gov­ern­ment could amend the Fi­nance Act, but a longer-term so­lu­tion may re­quire a broad frame­work to ad­dress all types of Is­lamic trans­ac­tions, Ala­mad said.

The Bri­tish tax au­thor­ity, Her Majesty’s Rev­enue and Cus­toms, told Reuters it wanted to en­sure tax con­se­quences of re­fi­nanc­ing Is­lamic mort­gages are not dis­ad­van­ta­geous when com­pared to stan­dard mort­gages and that work was on­go­ing.

The Char­tered In­sti­tute of Tax­a­tion, a Bri­tish pro­fes­sional body, has also pre­sented a sub­mis­sion to au­thor­i­ties that some think could open the way to change on Is­lamic fi­nance. “It may only be a mat­ter of time be­fore cur­rent leg­is­la­tion is amended to pro­vide fur­ther ex­press re­liefs and clar­ity,” said Imam Qazi, part­ner and Is­lamic fi­nance lead at law firm Foot An­stey.

Tax­a­tion is be­com­ing more press­ing be­cause their prod­uct range has ex­panded and now in­cludes sav­ings ac­counts, home pur­chase plans, a pen­sion scheme and busi­ness startup fi­nanc­ing, Qazi said.

Gate­house re­cently in­tro­duced buy-to-let fi­nance and plans to of­fer home­owner fi­nance through bro­kers, Qazi said.

Rosette Mer­chant Bank, a shariah-com­pli­ant firm, plans to di­ver­sify its client base be­yond the Gulf to tap South­east Asian mar­kets such as Malaysia, chief ex­ec­u­tive Sam Broad­head said.

The firm closed around 200 mil­lion pounds of in­vest­ment deals in the past 12 months, he said.

“We are look­ing to ex­pand out­side our core real es­tate of­fer­ing into other in­no­va­tive shariah-com­pli­ant in­vest­ment ar­eas, for ex­am­ple a fin­tech sup­ply chain fi­nance so­lu­tion and sev­eral cap­i­tal mar­kets projects,” Broad­head said.

Abu Dhabi Is­lamic Bank is work­ing on a new home fi­nance prod­uct, while Bank of Lon­don and The Mid­dle East is ex­pand­ing its wealth man­age­ment busi­ness.

There are con­cerns that fu­ture changes could also have an im­pact on the sec­tor.

The gov­ern­ment’s 2017 bud­get has pro­posed changes start­ing from 2019 to the tax sta­tus of non­res­i­dent in­vestors and the way they are taxed on real es­tate dis­pos­als.

Law firm Ashurst said such changes could af­fect many Mid­dle East Is­lamic in­vestors who buy into real es­tate through unit trusts and off­shore funds.

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