Levelling the playing field for Peer-to-Peer Islamic Finance alternatives

Her Majesty’s Revenue and Customs (HMRC) has made a welcome announcement as part of their ‘Building a trusted, modern tax administration system’, a principle first heralded by the government in July 2020. HMRC’s vision is to design a trusted, modern tax system that is simpler, easier to navigate, helps avoid non-compliance and is ‘fit for the modern world’. See the contextual detail here

The publication by HMRC with a foreword by the Rt Hon Lucy Frazer QC MP, Financial Secretary to the Treasury, specifically singles out Islamic Finance as a home financing alternative that the government now intends to include in their rules as a means of ‘levelling up’ the tax regime by way of ensuring that Islamic finance compliant peer-to-peer platforms and their financing is treated in the same way as traditional home financing and loans for taxation purposes.

This success has been brought about due to the efforts of Nester, the soon to launch Islamic Finance compliant peer-to-peer platform, in lobbying to seek a level playing field versus traditional bank real estate lending.

The HMRC memorandum published states:

3.16 Helping to level the playing field for alternative finance arrangements – The government is widening the scope of the alternative finance rules to allow FCA-regulated Home Purchase Plan providers and alternative finance arrangements through FCA-regulated peer-to-peer platforms to access the rules. This will allow these products to be treated in the same way as conventional mortgages and loans for tax purposes, contributing towards a level playing field for Islamic and conventional finance products. Changes will be made through secondary legislation in 2022. Arrangements entered into between the publication of this paper and the effective date of the secondary legislation will be eligible, but only in relation to events occurring after the effective date.

Nester is the first and the only Islamic Finance compliant peer-to-peer Fintech platform directly authorised by the FCA.

Youness Abidou, CEO and Co-Founder of Nester says “As real estate financing and investment evolves to embrace alternatives other than just traditional bank products, Nester set out to persuade HMRC that our provision, an Islamic compliant solution powered by technology, should surely not be excluded from the taxation benefits that conventional providers and their customers receive. After a successful effort by our team and our advisors I am pleased that our products are now to be assessed on the same basis as their conventional counterparts’.

‘As an FCA regulated business we can now add ‘HMRC compliant’ to our list of accreditations’.

‘Embracing product expansion and alternative funding methods is of course hugely beneficial to the customer because more choice means a greater competitive dynamic and, ultimately, better customer value.”

Mohammed Paracha, Co-Founder of Nester and former member of the Bank of England Committee on Islamic Finance says “In 2002 we made sweeping changes to the legal and regulatory system of the United Kingdom to level the playing field for Islamic Finance. This paved the way for London to host a number of new banks and Islamic products and become known as a global hub for the industry. London is now a multi-billion-dollar home for Islamic Finance related transactions’.

‘The changes announced by HMRC this week fixes a roadblock that was inadvertently created when the rules for FinTechs were first introduced. The dots had not been connected back to the earlier rules and this meant that new FCA regulated Islamic peer to peer FinTechs, such as Nester, were at a disadvantage and limited in product offerings in order to avoid the same double stamp duty issues that existed pre-2002. The playing field has now been levelled.”

Ed Peters, BDO Tax Partner at the leading accountancy and professional services firm, advisors to Nester adds “BDO is delighted to have been able to support Nester in their representations to HMRC to level the tax playing field for Islamic peer-to-peer lending platforms. It is great news that HMRC have been so supportive of the Islamic finance industry and their desire to support improvements in the tax rules in the industry are a positive development for the industry in the UK. As a firm, we are passionate about helping clients by tapping into our wide-ranging expertise and look forward to advising further Islamic lenders and investors.”

Nester has raised significant funds from leading investors from the world of Islamic Finance and is set to launch its real estate investment and financing products via its Fintech platform very soon

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