Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Murabaha definition

What does Murabaha mean? In legal practice, murabaha is an Islamic finance, cost‑plus sale used as a Sharia‑compliant alternative to an interest‑bearing loan: a financier acquires an identified asset and immediately resells it to the customer at cost plus a disclosed profit, payable on deferred terms (often instalments). The expression is descriptive rather than statutory; UK tax legislation typically refers to “alternative finance” purchase and resale arrangements and gives broadly debt‑like tax treatment, including relief to avoid double charges on back‑to‑back transfers for land transactions. Key features include: disclosure of cost and profit; two sales with the financier taking title (and interim risk) before resale;...

UK alternative finance rules—tax and VAT treatment of Murabaha purchase and resale arrangements for companies: corporation tax, withholding tax, CGT and stamp taxes

Published by a LexisNexis Tax expert

Practice notes

Shari’a compliant financing arrangements

Shari’a‑compliant financing structures (also called Islamic financing) can be arranged in several ways. In the UK, bespoke provisions known as the alternative finance arrangement rules address the direct tax treatment of particular Shari’a financing models. These rules are designed to ensure that, for UK direct tax purposes, qualifying Shari’a‑compliant financing is treated in the same manner as a conventional loan. Achieving this treatment depends on the arrangement satisfying the relevant legislative conditions applicable to alternative finance arrangements. The regime currently extends to five distinct types of financing. However, some areas of tax legislation, such as VAT, have not adopted specific measures for Islamic financing, which can give rise to uncertainty and to circumstances in which Shari’a‑compliant finance is not aligned with the treatment of conventional finance. The alternative finance rules for direct tax are not limited solely to Islamic financing. Non‑Shari’a structures could also fall within their Scope. One of the five alternative finance forms recognised in the UK tax rules is a purchase and resale arrangement...

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Sarah Squires

Old Square Tax Chambers

Sarah is a barrister at Old Square Tax Chambers, having been called to the bar in 2017. She has significant corporate tax experience, having practised a as a solicitor in leading City firms prior to re-qualifying as a barrister. She started her professional career in the tax department of Linklaters and then, following a move to Clifford Chance LLP in 2000, became a partner in their tax group in 2002. Sarah is a member of the Law Society Tax Law Committee. In addition, she also acts as a consultant to various trade and other representation bodies on tax policy matters. Sarah's practice is focused on general business and corporate tax matters, including in relation to real estate, finance and capital markets transactions....

Web page updated on 21/05/2026

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