The Government has committed to create a level playing field on VAT for retail investors in Islamic finance products.
In his Pre-Budget Report statement today, the Chancellor, Alistair Darling, says he will also provide relief from tax on capital gains for alternative property refinance transactions to maintain the UK's position as a centre for Islamic finance.
In addition, guidance will be issued on VAT treatment of alternative finance investment bonds.
Mohammed Amin, head of Islamic finance PricewaterhouseCoopers, says it is a small but important step in keeping the UK ahead of other Western countries.
"I'm pleased they have taken this measure as other countries are competing to attract Islamic financing. It should lead to a little bit more activity in this area," he says.
"But what the industry would really like to see is the issuance of a sovereign sukuk. It would be a major international statement and not be any more expensive than existing funding."
Scott Dakers, head of strategic alliances at Swip, says: "Any changes that create a level playing field are to be welcomed, so long as the playing field is not of a lower level. Islamic finance is clearly a growth area and the way in which transactions can be structured makes a great deal of sense when the structure is about transparency and cost."
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