How does HMRC give tax relief to Muslims for borrowing costs?

How does HMRC give tax relief to Muslims for...

Didn't find your answer?

As Sharia compliant banks do not give or receive interest how does HMRC give tax relief for 'interest paid' (compensation to the bank for the use of its borrowings,which is structured to not be interest for Sharia compliance purposes) against rent on BTL properties?

If there is some sort of mechanism whereby HMRC gives a deduction against rent for what is effectively interest by another name how will this deduction be affected by the new legislation, which restricts the claim for interest for higher rate taxpayers?

Replies (10)

Please login or register to join the discussion.

Portia profile image
By Portia Nina Levin
24th Jan 2016 15:26

There is no specific way of allowing conventional non-Islamic unstereotyped interest. An expense can be deducted from profits if it incurred wholly and exclusively for the purposes of the business, and to the extent that it is not capital in nature.

That would cover good old Christian, Buddhist, Hindu and Jewish (other religions are available, like Jedi) interest, as well as the cost of servicing a Sharia friendly loan.

The legislation restricting the allowability of interest does not directly refer to interest at all; it first refers to the costs of a dwelling-related loan, tells us what a dwelling-related loan is, and then defines costs of such a loan as:

interest,a return economically equivalent to interest, andthe incidental costs of obtaining finance by means of a loan.

So, you see Bryan, loans for all religious denominations are equally affected.

Thanks (2)
avatar
By User deleted
24th Jan 2016 15:32

Cool

It's amazing how often the answer to questions pops out if you read the relevant part of the underlying leg.

I recommend it to all

Thanks (0)
Replying to User deleted:
avatar
By BryanS1958
04th Feb 2016 10:01

Who has the time?

AnnAccountant wrote:

It's amazing how often the answer to questions pops out if you read the relevant part of the underlying leg.

I recommend it to all

I'm a general practitioner, far too busy jumping through hoops for professional bodies, AML, tax deadlines, etc to have time to read underlying legislation. I can't know everything about everything, hence the forum - so maybe there is someone who has come across the point without me having to reinvent the wheel:-)

Thanks (4)
By Tim Vane
04th Feb 2016 10:12

So what exactly is your client paying you for? You sound like HMRC's dream accountant. Don't have time to get to grips with legislation so I'll just blindly follow the guidelines.

Are all your director clients registered for self assessment I wonder?

 

Thanks (1)
Replying to Paul Crowley:
avatar
By BryanS1958
04th Feb 2016 11:56

Not for a client

Tim Vane wrote:

So what exactly is your client paying you for? You sound like HMRC's dream accountant. Don't have time to get to grips with legislation so I'll just blindly follow the guidelines.

Are all your director clients registered for self assessment I wonder?

 

Ignorant comment from an ignorant person.  It was out of interest and a long shot to see if there was an angle, so I'm not being paid by a client and hence asked the forum in case anyone else was aware of the position.

Thanks (2)
Replying to Tax Dragon:
Stepurhan
By stepurhan
04th Feb 2016 12:33

Who has the time?

BryanS1958 wrote:
I'm a general practitioner, far too busy jumping through hoops for professional bodies, AML, tax deadlines, etc to have time to read underlying legislation.

BryanS1958 wrote:
It was out of interest and a long shot to see if there was an angle, so I'm not being paid by a client and hence asked the forum in case anyone else was aware of the position.
So you don't have the time to look for yourself, but you do think others have the time to answer a question you neglected to mention was just "out of interest".
Thanks (2)
Replying to Tax Dragon:
By Tim Vane
04th Feb 2016 13:31

Don't be too hard on yourself

BryanS1958 wrote:

Ignorant comment from an ignorant person.  It was out of interest and a long shot to see if there was an angle

Don't be too hard on yourself. We all make mistakes. Sometimes ignorance is bliss. (Apparently).

Thanks (3)
By tonyaustin
05th Feb 2016 16:15

Quid pro quo

I always thought that accountants sold their services and knowledge to clients and if they could not provide what the client wanted, they referred the client to a person who could or bought in the knowledge or service. Bought of course implies payment or at least a quid pro quo so I am not sure I agree with all this free stuff unless one person has tried to find out and failed and another can point them in the right direction quickly and easily.

If you cannot do the latter, do not bother answering the question. Just offer to help for the appropriate fee or pass it to someone who can. Some of us dedicate most of our practice to helping other accountants with tax problems they cannot solve.and rely on this work for their income.

It is also worth bearing in mind that free advice is often not worth anything because you do not know if you can rely on it.

Thanks (0)
Replying to Ken Howard:
paddle steamer
By DJKL
05th Feb 2016 16:24

Being cynical

tonyaustin wrote:

 

It is also worth bearing in mind that free advice is often not worth anything because you do not know if you can rely on it.

Being cynical the same can be said sometimes for paid for advice judging by some of the postings/ questions asked on some of the A Web Any Answers threads .

Thanks (0)
avatar
By DMGbus
05th Feb 2016 16:37

Rent paid

The "borrower" rents a share in the property so pays rent to the what would normally be the "lender".

There is a diagram available illustrating this:

https://www.gov.uk/government/publications/islamic-financing/practice-gu...

It follows that the "borrower" is in reality a tenant in a shared ownership property and thus pays rent (rather than interest).

I would expect that the rent would be decucted as a cost (instead of what would be mortgage interest with a conventional house purchase arrangement).  However as always things can never be quite that simple, so see the following for any potential complications:

http://www.out-law.com/topics/tax/corporate-tax-/tax-treatment-of-sharia...

 

 

Thanks (0)