UK gets its first Islamic crowdfunder for business financing

For Muslims living in the UK, they are bound by the rules and laws relating to inheritance tax and wills. These rules are not based on Sharia law or Islam but are the rules of the country in which you reside. Whilst Sharia rules include provisions relating to managing the estate on the death of someone, the rules in the UK are more stringent and need to be understood.

Islamic Sharia law states that Muslims need to ensure that their assets are distributed according to Islamic rules on their death. Sharia rules outline how assets should be divided amongst surviving relatives.

For Muslims living in Muslim countries, the laws relating to inheritance and intestacy are based on Sharia rules so this makes things easier when it comes to the division of assets. However, for Muslims living in non-Muslim countries such as the UK, if they die without a will then their assets will be distributed in accordance with the domestic laws and not Sharia law.

WHAT IS INHERITANCE TAX?

Inheritance tax is essentially a tax applied on the estate of someone who dies. This tax is paid on the property and assets of the deceased above the inheritance tax threshold.

The aim of inheritance tax is to generate revenue for the government and to implement broader policies. For those wanting specific information about their tax liability they should speak to professionals who are experts in the field of tax and estate planning/ decision making.

HOW MUCH IS TAX FREE ON INHERITANCE?

Currently, in the UK inheritance tax is charged on 40% on all assets that exceed what is known as the nil rate band of £325,000.

No inheritance tax is payable on the first £325,000 of the estate. Above that, 40% inheritance tax is charged. This amount is lower if leaving your home to direct descendants.

ARE MUSLIMS EXEMPT FROM INHERITANCE TAX?

Muslims in the UK are not exempt from paying inheritance tax. However, there are some rules in the UK tax regime that can accommodate cultural or religious practices. These include:

• Charitable donations: zakat and sadqa payments and charitable bequests in wills made to qualifying charities can benefit from exemptions.
• Spouse exemptions: Normally, the transfer of assets between spousal beneficiaries is exempt from inheritance tax.
• Business relief: there are also some exemptions and reliefs that apply to businesses and agricultural assets.

DO MUSLIMS IN THE UK PAY INHERITANCE TAX?

Yes, Muslims in the UK are subject to the laws and rules relating to inheritance tax.

Inheritance tax in the UK is not based on religion but on the actual value of the estate and the rules of the country you live in.

HOW TO LEGALLY AVOID PAYING INHERITANCE TAX?

There are some strategies you can use legally to reduce your inheritance tax bill.

• Create a tax efficient Islamic will
• Effectively utilise the nil rate band
• Speak to professionals and experts for advice on managing your assets
• Use the spouse exemption
• Invest in business or agricultural property
• Set up tax efficient trusts
• Make use of charitable donations
• Gift your assets in a tax efficient way

Always speak to Sharia tax experts when planning your will and estate distribution.

WHO IS EXEMPT FROM PAYING INHERITANCE TAX IN THE UK?

There are some people and assets that are exempt from inheritance tax including spouses and direct dependents. The general rule is that if your estate exceeds the £325,000 threshold you need to start thinking about estate planning.

Exemptions under the tax rules are subject to conditions and criteria, so always speak to experts before making any decision.

WHAT ARE THE RULES ABOUT INHERITANCE IN ISLAM?

Islam sets out some clear provisions when it comes to inheritance and death. The first step is to ensure you have a legally valid will in place.Islam sets out the order or priority when it comes to the distribution of funds. The order of payments is as follows:

• funeral costs and expenses
• Outstanding debts
• Bequests to be honoured (but not where the value exceeds one third of the value of the estate/remaining assets
• distribution of remaining assets to family

Whilst Islam predetermines how our estate is divided on our death, it is still important to ensure we have a will in place.

WHAT HAPPENS IF YOU HAVE MORE THAN ONE WIFE?

In the UK as the inheritance tax rules are not based on religion, this means that if Islamically you have more than one wife the tax rules will be applied as per UK laws.

Only the legal marriage (as per UK rules) will be recognised for the purposes of determining inheritance tax responsibilities and liabilities.

CAN HALF-BROTHERS INHERIT IN ISLAM?

The rights of the half brothers inheritance depends on many factors including the presence of other heirs in the family, and the proportion of shares (see above) and order or priority.

Half brothers and sisters can inherit if there are no full brothers and sisters.

RIGHTS OF DAUGHTERS IN ISLAM?

Islam focuses on the equality of gender when it comes to inheritance rights. Daughters are entitled to inherit from parents who are deceased alongside other relatives.

Islam states that daughters are allocated a share in accordance with the principles outlined below.

As primary heirs, daughters will take priority over distant relatives.

The Division Of Jewellery In Islam

When it comes to jewellery, Islam provides guidelines for the distribution of the estate of the deceased and these guidelines include jewellery. Those distributing the estate should be mindful of the fixed shares for the different categories of heirs as stipulated by Islamic rules.

Jewellery is considered part of the estate of the deceased and is subject to Islamic rules of asset division. Of course, the deceased can leave specific bequests in their will when it comes to jewellery and it is expected that the other heirs honour the wishes of the deceased and consent to the bequests.

Islamic Rules Relating To Wills And And Payment To Heirs

Sharia law states that you can distribute up to one third of your estate however you want to on your death. This applies as long as the third share is passed on to someone that is not already entitled to a fixed share of the estate.How is the remaining inheritance divided in Islam?The remaining two thirds of the estate on death should be distributed as follows:

• the surviving wife is entitled to receive one eighth of the husband's estate. If there are no children from the marriage then the wife receives one quarter of the estate.
• the surviving husband will be entitled to a quarter of his deceased wife's estate. If there are no children of the marriage then the husband received one half.
• depending on what the entitlement of the surviving spouse is, the mother of the deceased is entitled to one sixth of the estate. This figure is one third in the event that the deceased had no children.
• If the deceased's father is alive, then the mother is entitled to one quarter of the estate (where there are no children).
• If the deceased does not have a spouse, children or father, then the mother will inherit one half of the estate.
• If the deceased leaves behind no children, the father of the deceased will receive the surplus after distribution.
• If the deceased leaves behind one (or more) son, then the father is entitled to one sixth of the estate (but no entitlement to any surplus).
• If the deceased is survived by a spouse and daughters, then the father of the deceased will receive one sixth of the estate. In addition, the father will receive one sixth of any remaining surplus once the division of the estate has completed.
• surviving children are entitled to the surplus of the estate once the remaining spouse and parents have received their share.
• male grandchildren and children are entitled to over 50% of the estate when compared to the female children and grandchildren.
• If there are two plus surviving daughters then they will share two thirds of the estate equally between themselves (as long as there are no other surviving relatives).

CAN YOU REFUSE INHERITANCE IN ISLAM?

The simple answer to this is yes, you can refuse inheritance. However, any voluntary refusal should be made after careful consideration.

WHICH COUNTRIES HAVE NO INHERITANCE TAX?

There are many countries across the globe that do not have inheritance tax regimes. These include:

• UAE
• Saudi Arabia
• Qatar
• Oman
• Bahrain
• Monaco
• Brunei
• Slovakia

In traditional and western retirement planning there was one main model used for investing and that was the one that created the most profit with any given risk tolerance. However, in recent years, the demand for Sharia compliant retirement planning has grown. This growth alongside the demand for more socially responsible investment means that Islamic finance has created Sharia compliant options for retirement planning.

Socially responsible investing is at the heart of Sharia law. What it means for those looking to build a halal retirement fund is that it limits an investor's portfolio to those kinds of investments that are deemed to be socially responsible.

Retirement Planning

Retirement planning is a key part of planning for the future. It is important for many different reasons including the following:

• Maintaining quality of life
• Facilitating financial independence
• Inflation protection
• Reducing financial stress in later years
• Managing longer life expectancy
• Covering benefits and pension gaps in later years
• Legacy planning
• Facilitating early retirement

Retirement planning ensures that you take a strategic and proactive approach in planning for your future. It is a means of securing your financial future with a roadmap for saving, investment and managing your finances.

WHAT IS SHARIA COMPLIANT RETIREMENT PLANNING?

Sharia compliant retirement planning refers to making financial arrangements for your future that do not contravene Islamic rules relating to financial transactions and savings.

Retirement planning in a Sharia focused manner refers to preparing for retirement whilst adhering to ethical guidelines outlined in Islamic finance.

Let's examine some of the key principles related to Sharia compliant retirement planning:

1. Interest - the main rule for halal retirement planning is that you must avoid riba (interest). Islam strictly prohibits any form of interest. If you are planning for your retirement make sure that none of your investments and savings accounts are not linked to interest in any way. In fact, you should ensure that any product, service, or company you deal with does not include interest based products or the payment of interest.
2. Risk and profit sharing: Islamic finance rests on the principle that transactions and deals should result in both parties sharing the risk and profit. This creates a more equitable relationship when dealing with money.
3. Ethical investment: retirement planning that is halal encourages ethical and socially responsible investing strategies. This means that you should look to invest in industries and companies that lead to social benefit (ie education, healthcare, relieving poverty) and stay away from companies that are involved in haram industries such as gambling, war, and alcohol.
4. Charity: although not necessarily related to retirement saving, ensuring you keep up with your zakat and sadaqah payments during your life is important. Not only does this form of charity enhance your adherence to Islam, but it also means that you can set aside money or a portion of your wealth for charitable purposes later on in your life.
5. Avoidance of speculation: if you are retirement planning then you need to be choosing products and investment options that are secure. Avoiding speculative products and markets means your long term planning is on more stable ground. Islam seeks to minimise ambiguity and uncertainty in financial dealings. As an investor, you should seek those investments that are asset backed and tangible.

WHAT IS AN INVESTMENT?

An investment is something that you invest in to generate a return. When it comes to halal retirement planning, a halal investment is one that complies with Islamic rules.

There are more products, services and investment options on the market than ever before. Islamic finance is still a dynamic industry, so for anyone looking to plan for their retirement and future you should know that there are many products already on the market.

When it comes to stocks and equities, Muslim investors can construct a portfolio that is Sharia compliant by ensuring that they research the companies, choosing those investments that meet the Islamic finance criteria of being compliant.

Types Of Retirement Accounts

When planning for retirement there are a few different options. You can either use regular investment accounts and earmark part of the savings specifically for long-term investment. Or, you can use retirement accounts that are created for the sole purpose of future planning.

In the UK, there are Islamic pensions that do comply with Sharia principles. They focus on investing in halal industries and assets, using a halal investment plan.

Another form of long-term investment planning includes real estate. For many people, property is a means of planning for your retirement. There are many halal mortgage options in the UK and European markets for Muslims to access. These mortgages are structured to ensure the individual does not have to pay or be charged interest to the bank that provides the mortgage as a lender.

Sharia Compliant Pensions

As an employee in the UK, it is very likely that you are already paying into a workplace pension. In addition to this, you can also have a private pension to supplement your income in retirement.

There are various Islamic pension schemes available, alongside halal Islamic bonds called sukuk and other investments that are Sharia compliant.

Muslims can also look into having a halal SIPP which are self-invested personal plans. These plans are a type of pension that provide individuals with the flexibility to create their own pension portfolio. A halal SIPP is one where the requirement of the pension investments is that they are Sharia compliant.

SHARIA RETIREMENT PLANS - WHY HAVE THEM?

There are many reasons why you should have a Sharia compliant retirement plan, not least so that you adhere to Islamic rules.

As we become an aging population it is more important than ever to ensure we have the means to live and survive as we age.

Sharia retirement plans are necessary because they:

• are a form of voluntary Islamic pension so you can adequately plan for retirement.
• provide opportunity to manage the risk and return for the future
• create a flexible investment plan
• are Sharia compliancy
• lead to secure, halal financial planning

For anyone looking to build a secure halal retirement plan you need to research and make all the relevant enquiries as soon as you can. Look into banks, financial institutions and services that provide pensions and future planning.

Consult with Islamic scholars and financial advisors who are knowledgeable about Islamic finance and give you accurate information.

Remember, the Islamic finance offerings and landscape is ever-changing and growing and the value of its services should not be underestimated. As the economy continues to fluctuate it is important to understand the commercial and business process relating to retirement planning. Understand what it is you need for the future and start making plans now.

Determining Sharia compliancy is a critical part of halal retirement planning. You need to be able to evaluate an investment and eliminate any element of haram so that it aligns with your Islamic belief system.

Introduction

Islamic microfinance refers to financial transactions that are based on wider Islamic finance principles. These Islamic finance principles themselves are based on the teachings of the Prophet Muhammad (PBUH) and the Quran.

Islamic microfinance provides access to financial services for those who live in low-income households or economies.

The contractual terms of Islamic microfinance arrangements are not interest-based, but instead the terms are Sharia complaint. Islamic microfinance is viewed as a positive tool and concept for facilitating poverty alleviation and financial inclusion.

Research has shown that economies that operate or make available Islamic microfinance widen the market for any Muslim customer looking for structures that do not contravene Sharia rules and want a more ethical basis for their financial dealings.

WHAT IS ISLAMIC FINANCE?

Islam sets out principles that should govern financial transactions, especially commercial financial transactions. One of the main principles of Islamic finance is that the money itself does not earn - what this refers to is interest. Interest, or riba, is not permitted in Islam as money is not seen as an asset that earns in and of itself.Some of the main principles of Islamic finance are as follows:

• No interest (see above)
• Prohibition of involvement in haram industries and products
• Equity in profit and loss sharing
• Ethical and socially responsible investing
• Fairness and transparency
• Avoiding speculation or gambling

WHAT IS ISLAMIC MICROFINANCE?

Any Islamic microfinance product or service in any capital form cannot mirror conventional finance arrangements. Many conventional financial arrangements, although able to provide financial resource, are not Sharia compliant.

Let's examine some of the key features of Islamic microfinance:

• Any Islamic microfinance commodity or service must ensure that there is no element of riba whatsoever. No interest is attached to the debtor, the lender, or the debt.
• In addition, microfinance transactions should always be linked to tangible economic activity. This means there cannot be any financial speculation or uncertainty that is excessive.
• Any product that is bought or sold must be clear and tangible. You cannot trade in or sell something you do not own.
• If involving activities, then these should be socially responsible activities that do not exploit or morally harm others.

What this means for Muslims is that many of them stay away from the financial services on offer. Whilst the structure of conventional finance options may appeal to the masses, Islamic microfinance offers an alternative form of finance.

Key Principles Of Islamic Microfinance

One of the main objectives of Sharia law and Islamic finance is to alleviate poverty and empower people and communities.

Whilst we have looked at some of the key principles above, let's have a look at them in more detail:

• Asset backed finance: Asset backed finance encourages finance options that are backed by real and tangible assets.
• Profit and loss sharing: Islamic finance is focused on profit and loss sharing arrangements. This means that the risk is also shared between the respective parties to the contract and transaction. Common forms of profit and loss sharing arrangements in Islamic finance include mudaraba and musharaka arrangements.
• Social welfare: Promoting social welfare is a central tenet of Islamic finance. Providing and facilitating access to education, healthcare, and essential services is seen as the promotion of social welfare so any form of financial arrangement that enables this to take place is seen favourably in Islam.
• Ethical investing: as is the case with social responsibility, Islamic microfinance heavily favours ethical investments. What this means in principle is that any investments need to add value to others and society. Examples of projects and investments that are deemed to be ethical include community development projects, agricultural, and healthcare projects.
• Interest (riba) avoidance: riba is strictly prohibited in Islam so any form of arrangement where interest is paid or charged is impermissible. Islamic microfinance steers clear of interest-based products (often used by lenders in Western economies which are credit and debt based).

Social Responsibility

One of the main principles of Islamic finance is that finance should serve society. What this means is that financial transactions must be conducted in a socially responsible manner. The foundation and ongoing management of Islamic microfinance products (on paper and in practice) should be equity-based.

The idea underpinning Islamic social responsibility is that there is a balance between social objectives and financial objectives. What this ultimately leads to is more sustainable finance long-term as the scope for exploitation and inequality within transactions is minimised.

In many ways, Islamic microfinance is underpinned by principles of benevolence, morality, unity, freedom, and equilibrium. Muslims believe that they all have a responsibility to society and the environment. Therefore, they must embody this commitment to social responsibility through their words and actions.

In this way, they can contribute to social justice (as prescribed by Islam) and ensure populations across the globe are not adversely impacted.

Types Of Islamic Microfinance

Islamic microfinance is based on the foundations of Sharia law. Sharia rules place great emphasis on transparency, fairness, social responsibility, and ethical behaviour.

Let's have a look at some Islamic microfinance products:

MICROCREDIT

Islamic microcredit is a term used to describe small financial services relating to credit. Microcredit operates within Sharia rules and is designed to ensure that entrepreneurs and small businesses are able to access fair and equitable financing options.

Islamic microcredit does not include any riba and is asset-based finance. Any loan issued is backed by assets or productive ventures.

MICROLEASING

Islamic microleasing (also known as microfinance leasing), enables small businesses and entrepreneurs to lease assets for varying periods of time. The leasing arrangements are compliant with Islamic finance rules.

In Islamic microleasing arrangements, the lessor (lender) will retain ownership of the asset and grants the lessee a right to use the asset for a period of time. The lessee then pays the lessor lease payments for the use of the asset.

MICROINSURANCE

Islamic microinsurance is also known as takaful insurance. This type of insurance does not contravene Islamic finance principles. Takaful is a cooperative arrangement based on shared risk and mutual assistance between the parties.

What this means in real terms is that businesses and individuals are able to access insurance coverage whilst remaining Sharia compliant.

Islamic Microfinance - The Prospects

It is estimated that over 60% of Muslims who live in Muslim countries do not use formal financial service institutions and services. One of the main reasons for this is that many Muslims view conventional finance institutions as incompatible with aspects of Sharia law.

This has led to the emergence of microfinance services and products being developed both inside and outside of Muslim countries and economies.

Muslims are increasingly keen to engage with financial services that comply with Sharia law and the rules of Islamic finance. Since 2006, the Islamic finance market has seen a four-fold increase, and this is likely to continue growing in the future.

What Islamic microfinance represents is the merger of two quickly accelerating industries - Islamic finance and microfinance. Not only does Islamic finance meet the commercial business demands within global economies, but it also provides individuals looking with Sharia compliant funding options.

Unlocking The Potential Of Islamic Microfinance

Any financial transaction that meets Sharia rules is not only good for business, but it also means that transactions are socially and ethically considerate.

Islamic microfinance has the power and potential to operate in a fair, socially responsible and transparent way. What this means for businesses, the entrepreneur, individuals, and communities is that they too can access funding and enhance their ability to access finance and loans.

Providing financial access to poorer or marginalised communities who currently reject conventional, interest-based finance products means greater equity and economic development.

Islamic Microfinance And Poverty Reduction

Islamic microfinance is based on the foundations of equity and social and environmental responsibility.

One of the main advantages of Islamic microfinance is that it contributes to poverty reduction in various ways:

• Enterprise and entrepreneurship - Islamic microfinance supports individuals and businesses from low-income and under-developed communities. It enables these businesses and entrepreneurs to access capital for the ventures and establish sustainable and Sharia compliant livelihoods.
• Financial inclusion - as already mentioned, Islamic microfinance has become an important tool in encouraging and facilitating financial inclusion. Offering financial products that are not only accessible but also Sharia compliant means that marginalised groups can access funding for their start-ups.
• Skills growth - there are many Islamic microfinance organisations that offer training and skill enhancement programmes alongside their financial products and services.
• Community development - with a strong focus on equity and social responsibility, Islamic microfinance is committed to community development. This goes beyond offering financial assistance. Microfinance products can include access to healthcare, education, and a wide range of community benefits.

Islamic Microfinance - The Challenges

One of the main challenges for the Islamic microfinance industry is spreading awareness of the products and services on offer. Despite growing rapidly, this industry is still seen as being in its infancy.

Further advertising and outreach work is required to make sure that Muslims and socially responsible investors are aware of the microfinance options available to them.

The important thing to remember is that Islamic microfinance encourages and develops financial inclusion and freedom. Whilst the impact of Islamic microfinance funding options may vary depending on the regulatory environment, local economic conditions, and institutional capacity, Islamic microfinance is essential if we want to ensure the sustainability of Islamic finance initiatives and alleviate poverty.