Shariah Compliant (Halal) Tax-efficient ISA

Investing without compromising your religious beliefs

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What is an ISA? Understanding Tax-Free Growth

An ISA (Individual Savings Account) provides savers with the opportunity for tax-efficient growth. No income tax or capital gains tax is payable on the disposal of the ISA, making it a great option for tax-free savings. However, conventional and Shariah compliant ISA / Halal ISA are considered part of your estate for inheritance tax purposes.

A Stocks and Shares ISA offers an annual allowance of £20,000, while a Lifetime ISA (LISA) has an annual allowance of £4,000, with the government providing a 25% bonus, increasing the total savings to £5,000 per year. There are, however, restrictions on LISA withdrawals, which we will cover later.

Types of ISAs: Including Shariah Compliant Options

There are two main types of ISAs:

These are typically offered by conventional banks and building societies, where interest (riba) is paid. However, these accounts are not Shariah-compliant. For those seeking halal alternatives, Shariah-compliant ISAs are available through Islamic banks, which pay an expected profit rate rather than interest, aligning with halal investment principles.
A Stocks and Shares ISA allows your funds to be invested in the stock market, providing the potential for longer-term growth. Investments can be diversified across various asset classes, such as equities, bonds, and property. For those looking for halal investment options, Shariah-compliant Stocks and Shares ISAs are available, ensuring your investments are halal and aligned with Islamic values.

To find out more about Shariah compliant investing, click the link below:

Shariah compliant investments

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Are ISAs halal?

An ISA simply determines the tax treatment of your funds, but whether it is Shariah-compliant (halal) depends on the nature of the investments within the ISA.

ISAs invested in conventional bank accounts or building societies are not Shariah-compliant due to their reliance on interest (riba). Similarly, ISAs that hold investments in the conventional stock market often include assets that are haram (prohibited), such as companies involved in industries like alcohol, gambling, or interest-based financing.

For the Shariah-conscious investor, there is good news: there are halal options for both cash ISAs and Stocks and Shares ISAs.

Shariah-compliant cash ISAs are available through Islamic banks, where instead of earning interest, you receive an expected profit rate.
Shariah-compliant Stocks and Shares ISAs allow your funds to be invested in halal industries, adhering to Islamic finance principles and avoiding companies that engage in activities prohibited by Shariah law.

At Blackstone Wealth, we specialize in advising on a variety of Halal ISAs, helping you achieve your financial goals while staying true to your faith.

Are Shariah Compliant Stocks and Shares ISAs Risky?

Halal Stocks and Shares ISAs carry more risk compared to cash-based savings, where capital risk typically does not apply. While cash ISAs tend not to outpace inflation, halal stocks and shares ISAs offer the potential for greater returns, although they come with a higher level of risk.

The good news is that there are various risk profiles available for Shariah compliant ISAs to cater to different types of investors. During your initial consultation, we will assess your risk tolerance and investment goals to recommend the most suitable halal ISA for you.

What if I Need the Money?

Although we recommend clients invest in a halal Stocks and Shares ISA for at least five years to maximise growth, one of the key benefits of ISAs is their flexibility. You can access your funds at any time without incurring capital gains tax or income tax.

For Lifetime ISAs (LISA), funds are intended for specific uses: buying your first home, funding your retirement after the age of 60, or if you're diagnosed with a terminal illness with less than 12 months to live. Any other withdrawals are considered unauthorized and will incur a 25% penalty.

More details on LISA rules can be found on the gov.uk website here

Is a Halal ISA or Halal Lifetime ISA Right for Me?

MAKING THE RIGHT CHOICES

Whether a Halal ISA or Halal Lifetime ISA is right for you depends on your financial circumstances and long-term goals. For those seeking a halal investment solution, a Shariah compliant ISA could be an ideal choice, but this should be considered as part of a broader financial plan.

If you’re interested in finding out whether a halal ISA is the right option for you, contact us at Blackstone Wealth for expert advice. We’ll be happy to discuss how a Shariah-compliant ISA may fit into your overall financial planning.