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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Employment-related securities and options: Alternative Finance Investment Bond: Islamic Finance bonds or ‘sukuk’

Alternative Finance Investment Bonds include certain Islamic structured financial instruments (referred to as ‘sukuk’) that are compliant with the Shari’a law prohibition on paying or receiving interest. They have been used by Muslim societies since the Middle Ages as forms of paper representing financial obligations originating from trade and other commercial activities. More recently Sukuk have been structured so as to become aligned with the structure of conventional securities.

The UK government has worked on tax and regulatory reform to support the development of Shari’a compliant finance since 2003.

In economic substance sukuk are similar to conventional debt securities and Section 53 of the Finance Act 2007 provided rules to put their tax treatment on a level playing field with conventional securities. The new rules state that sukuk which meet the conditions in the legislation will count as securities for the purposes of any enactment about tax including the legislation on employment-related securities.

Accordingly ITEPA03/S420(1) now includes, in the list of those things which are ‘securities’, arrangements to which Section 564G of Income Tax Act 2007 (alternative finance arrangements: investment bond arrangements) applies.