LONDON, March 5 (UPI) -- Britain's Chancellor Alistair Darling plans to close an Islamic loophole that permitted developers to avoid $1.99 billion in taxes, it was reported Wednesday.
The loophole was created in 2005 to allow homeowners compliant with Islamic law to avoid having to pay their stamp duty twice, the Times of London reported.
Under Islamic law, called Sharia, no interest payments are allowed. Consequently, for Sharia compliant mortgages, banks would set themselves up as the owner of the property, while homeowners, essentially, leased the home until they could buy the property at a pre-arranged price.
In Britain, leases require a stamp duty tax, too, so to avoid paying the tax twice, Sharia-friendly tax laws were adopted.
But developers with no cultural ties to Islam spotted the loophole and customized their deals accordingly.
An increasing number of $100 million to $200 million deals have been arranged using Sharia-compliant financing, analysts said.
"There has definitely been over a billion pounds' worth of deals -- it is only worth doing on the larger deals. There is nothing illegal but it has only become fashionable over the past six months," one property agent said.
