Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Musharaka definition

What does Musharaka mean? Musharaka describes, in legal practice, a Shariah-compliant contractual partnership or participatory (participation) financing arrangement in which two or more parties contribute capital to a venture and share profits as agreed and losses in proportion to capital contributed. It is not defined in UK or Irish legislation or case law; it is a descriptive term from Islamic jurisprudence used across Islamic finance transactions and documentation. Key legal features include joint ownership of the venture or asset, shared commercial risk, profit distributions (not interest), and the ability to delegate management to one partner subject to agreed controls and oversight. It is commonly...

UK tax treatment of musharaka (diminishing shared ownership): corporation tax loan relationships, CGT (including FA 2025 refinancing relief), withholding tax, stamp duty/SDRT and VAT

Published by a LexisNexis Tax expert

Practice notes

Shari’a-compliant financing arrangements

Shari’a‑compliant financing arrangements (often described as Islamic financing) can be implemented in a range of formats. The UK has enacted dedicated provisions, termed the alternative finance arrangement rules, to address the direct tax treatment of specified Shari’a finance structures. These rules are intended to ensure that, for UK direct tax purposes, qualifying Shari’a finance is treated in the same way as a conventional loan. That outcome applies only where the financing arrangement satisfies the statutory conditions set out for alternative finance arrangements. At present, the regime encompasses five distinct categories of financing structures. By contrast, some parts of the tax code, such as VAT, have not introduced bespoke measures for Islamic finance. As a consequence, there can be uncertainty about the appropriate VAT treatment where the legal form diverges from the underlying substance, including situations in which Shari’a‑compliant finance is not treated in the same way as conventional finance. Accordingly, transactions may face uncertainty in VAT treatment where legal form and substance diverge. Notably, the direct tax rules on alternative finance are not limited to Islamic finance; non‑Shari’a structures could also potentially fall within their scope where the relevant statutory conditions are met...

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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 22/05/2026

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