Sharia Compliant Bank

Stonybroke47

If profit from a Sharia compliant bank is rolled back for several years to add to the capital, does the profit from each year need to be added together for UK tax purposes when all the money is withdrawn?

MyRealNameToo

Are you talking about the banks profit or a customer's "interest"?

For you you pay tax on the interest/profit share on when you gain access to it, so for easy access its when its paid over, for fixed terms its on maturity

ToastLady

If the profit is only added at maturity, then that is what will be needed for tax purposes. You do have to watch out though as one I know added profit quarterly, which kind of caught me out as profit landed in different tax years, and was reported to HMRC as such, even though I couldn't get it until maturity. In fairness, it may have asked on application if I wanted profit paid to another account or to the fixed account and I would have chosen the latter, but I can't remember now.

poseidon1

https://forums.moneysavingexpert.com/discussion/6689431/sharia-compliant-bank

Seems you are talking about how such multi year profit interest is reported to HMRC for the purposes of the Sharia bank 's Alternative Finance Return (such banks are outside the more common BBSI reporting system).

Rules are similar, if profit interest is calculated and added to the balance annually by the bank then an AFR return is submitted annually on behalf of the saver with the saver taxable on profit added in the year even though they have no contractual access until maturity.

Where however the profit is not calculated or added until the end of the multi year period then the AFR is made on maturity and profit taxable in year of maturity.

Obviously OP, only you can ascertain the exact terms of your multi year arrangement, but if your bank is issuing / sending you ( or you can access online) annual Certificate of Expected Profit, this would be indicative of profit taxable annually.

Any reason you have not put this question to your bank for a definitive response?

mills112

I had a two year bond with Al Rayan, but they added interest every month so I had to declare the interest in the tax year that it was received on my self assessment.

you need to check with the bank but i think from memory, even two year bonds are paid annually as i remember getting an annual tax certicate of interest from BLME for my two year bond.

Bigwheels1111

I have 2 such accounts, both pay profit / interest for tax purposes annually and away. This makes declaring it easy.

ISIS Bank via Raisin is a bit of an issue as Raisin have a habit of not reporting the interest payments to HMRC.

You could be in a catch 22 scenario.

The interest is added each year but not available to withdraw, this interest option should be taxed at maturity be 3 or 5 year for example and you will be taxed on the whole amount in one go.

The catch 22 issue is that the banks report yearly, not that the interest is unavailable and locked in, HMRC then tax you on it each year even though that is not correct.

Many posts of here with that issue, very hard to resolve.