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prepare the framework for the issuance of Sukuk, the Alternative Finance Investment Bonds
(Stamp Duty Land Tax) (Prescribed Evidence) Regulations 2009 was issued. Similar alternative
finance clauses have been introduced in other taxation legislation. In the Islamic banking sector,
the major challenge in countries like the UK is the issue of double taxation, which was also
resolved through legislative amendments to existing laws, including the Finance Act 2003. Tin
addition, the Finance Act 2005 identifies Islamic finance as “alternative finance arrangements”,
with substantial clarity on the definitions of each Islamic finance mode of financing in the
legislation.
In 2010, the Finance Act 2005 of the UK was amended and the relevant provisions applicable to
“alternative finance arrangements” were repealed and moved to different legislation for
legislative clarity and to avoid duplication of laws. In other words, sections 46-47A of the
Finance Act 2005 were abolished, and the provisions were substantially moved to Taxation
(International and Other provisions) Act 2010, Schedule 2 which is on alternative finance
arrangements, which provides: “In this Part “alternative finance arrangements” means— (a)
purchase and resale arrangements, (b) diminishing shared ownership arrangements, (c) deposit
arrangements, (d) profit share agency arrangements, and (e) investment bond arrangements.
The implication of the latest amendments is to ensure there is no double taxation for alternative
finance arrangements while still subjecting Islamic finance to existing legislation regulating the
financial services sector.
Just like other aspects of the Islamic financial services industry in the UK, the Takaful sector is
regulated under the existing legal and regulatory framework for insurers and reinsurers. The
insurance industry, as well as the Takaful sector, are governed by the Financial Services and
Markets Act 2000 as amended, and the Financial Services and Markets Act 2000 (Regulated
Activities) Order 2001. The Financial Conduct Authority introduced a Handbook while the
Prudential Regulation Authority issued its Rulebook to expressly state the governance and
capital requirements of insurance companies in addition to business requirements.
With Brexit negotiations, uncertainty looms in the air as to the need for the UK to have its specific
legislation on certain aspects of insurance. However, the latest amendments to the Taxation
(International and Other provisions) Act 2010 provides a general framework upon which
Takaful contracts can be structured. Hence, the above section would apply to Takaful contracts.
In addition to this, the recently introduced Takaful model for student financing is underpinned
by relevant provisions in the Higher Education and Research Act 2017, which recognises
alternative payments which do not bear interest.
It is pertinent to note that under the UK legislation, there is no explicit definition of insurance or
reinsurance contract; hence, Takaful is not defined anywhere. However, reliance is placed on the
essential requirements of an insurance contract enumerated by Channell J in Prudential
Insurance Co v IRC [1904] 2 KB 658, where he identified that an insurance contract constitutes
the payment of a sum of Money called, which may be called premiums by a party (i.e.
policyholder). In consideration of such payments, the other party (the insurer) contractually