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City lawyers have welcomed Gordon Brown's call to promote London as a centre for Islamic finance, but have warned that there may have to be changes in the UK tax regime first.
Last week, the Chancellor told a conference organised by the Muslim Council of Britain that he wanted to see London operating as an Islamic finance hub. The Islamic finance market is reported to be worth up to $400bn (£216.44bn) a year and is growing on both the retail and wholesale banking sides.
However, lawyers point out that the Islamic approach to banking has created problems with Western structures because of the sharia law prohibition against interest, or riba. Despite the growth of Islamic versions of capital markets products, such as sukuks (sharia-compliant trust certificates that mimic bonds), lawyers say there is still some work to do on harmonisation.
Many Islamic finance specialists contacted by The Lawyer suggested the removal of double stamp duty for commercial property. Two years ago, the Government removed double stamp duty on residential mortgages in a bid to open the retail Islamic market in the UK.
Dechert partner Abradat Kamalpour said: "The steps taken by the Government with the Finance Act 2005 were very positive. The act introduced specific UK tax rules that mirrored certain Islamic finance structures." Other lawyers agreed that the UK had already made strides in creating an Islamic finance market in London.
Allen & Overy partner Mike Duncan said: "I don't think there's anything holding it back at the moment. Certainly, they're trying to be even-handed at the FSA when Islamic banks are set up here."
Norton Rose partner Neil Miller said: "I think what the Chancellor is getting at is marketing the UK as a place that is friendly towards Islamic finance.
"With stamp duty changes, you can do real estate financing tax-efficiently - and you can't do that in Pakistan or Indonesia. The UK is already way ahead of some of the Muslim states, so we're going in the right direction already."
But Miller warned: "The Chancellor has to balance being socially inclusive against creating loopholes in the tax framework."