Question:
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 buy-to-let properties? I would think there must be some sort of mechanism whereby HMRC gives a deduction against rent for what is effectively interest by another name, so just wondered how will this deduction be affected by the new legislation, which restricts the claim for interest for higher rate taxpayers?
Arthur Weller replies:
If you look at Income Tax Act 2007, Pt 10A, and Corporation Tax Act 2009, ss 501-521, you can see that the legislation broadly equates the tax treatment of such Sharia compliant payments and receipts, with the treatment of interest. See also HMRC Helpsheet 340. Finance (No. 2) Act 2015 section 24 (which introduced new rules for relief on finance costs related to residential property) implies in new ITTOIA 2005, s 272B(5)(b) that the rules apply also to Sharia compliant payments.
If you look at Income Tax Act 2007, Pt 10A, and Corporation Tax Act 2009, ss 501-521, you can see that the legislation broadly equates the tax treatment of such Sharia compliant payments and receipts, with the treatment of interest. See also HMRC Helpsheet 340. Finance (No. 2) Act 2015 section 24 (which introduced new rules for relief on finance costs related to residential property) implies in new ITTOIA 2005, s 272B(5)(b) that the rules apply also to Sharia compliant payments.
