TRW & Co · Banking, Finance & Restructuring
Islamic Finance Lawyers in London
Islamic finance lawyers London deal teams instruct make Shariah-compliant structures work under English law. That means choosing between murabaha, ijara, wakala and sukuk, securing the right tax treatment, and drafting documents that a Shariah board approves and an English court or tribunal will enforce, including against borrowers in Bangladesh and the Gulf.
Key pointEnglish courts will not apply Shariah as a governing law, so enforceability depends on a clean English-law clause, a Shariah-compliance waiver and careful checks on each party's corporate capacity.
At a glance
English law governs
In Shamil Bank v Beximco the Court of Appeal held that a reference to Shariah principles could not displace an express choice of English law.
Level tax playing field
The Corporation Tax Act 2009 and Income Tax Act 2007 treat qualifying alternative finance arrangements and sukuk broadly like loans and bonds.
SDLT relief available
Sections 71A and 73 of the Finance Act 2003 relieve alternative property finance from double stamp duty land tax where conditions are met.
UK sovereign sukuk
HM Treasury issued £200 million of sukuk in 2014 and £500 million in 2021, the second using an Al-Ijara structure.
Capacity still matters
Investment Dar v Blom shows a party's constitution may limit it to Shariah-compliant deals, a question governed by its place of incorporation.
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What Islamic finance lawyers London clients instruct actually do
Islamic finance lawyers London banks, corporates, investors and family offices instruct have a two-part job. They must make a transaction work under English law, which almost always governs the documents, and they must structure it so that a Shariah supervisory board can approve it. When those two disciplines are handled separately, deals are delayed, fatwas are reopened and, in the worst cases, enforceability is challenged years later.
Islamic finance replaces interest-bearing lending with trade, lease, partnership and agency contracts. The commercial outcome can look similar to conventional finance: a borrower gets money now and repays over time. The legal route is different. The financier usually buys, owns, leases or shares in an asset, and its return comes from a sale mark-up, rent or a share of profit rather than interest on a loan.
In England and Wales this work arises in bilateral and syndicated financings, real estate acquisitions, project and infrastructure deals, trade finance, sukuk issuances, fund structures, home purchase plans and treasury products. It also arises in disputes, where a party argues that a contract is unenforceable because it was not Shariah compliant. Islamic finance lawyers London deal teams rely on need to anticipate that argument at the drafting stage.
The legal and regulatory framework in England and Wales
There is no separate Islamic finance statute in the UK. Shariah-compliant products sit inside the ordinary framework: contract law, property law, company law, the Financial Services and Markets Act 2000 and the tax code. The policy has been to create a level playing field, so that an Islamic structure is taxed and regulated broadly like its conventional equivalent rather than being penalised for its extra steps.
English law governs, and Shariah is not a "law of a country"
The leading authority is Shamil Bank of Bahrain v Beximco Pharmaceuticals [2004] EWCA Civ 19, a case with a Bangladeshi borrower group. The clause read: "Subject to the principles of the Glorious Sharia'a, this Agreement shall be governed by and construed in accordance with the laws of England." The Court of Appeal held that English law alone governed. The choice-of-law rules then in force (the Rome Convention) contemplate a choice of the law of a country, not a religious or non-national system, and the reference to Shariah did not allow the borrower to escape its payment obligations.
The same reasoning appears in later cases. In Dana Gas PJSC v Dana Gas Sukuk Ltd [2017] EWHC 2928 (Comm), the Commercial Court rejected an issuer's attempt to avoid an English-law purchase undertaking in a mudaraba sukuk by arguing that the structure had become unlawful or non-compliant. By contrast, in Investment Dar Co KSCC v Blom Developments Bank SAL [2009] EWHC 3545 (Ch) the court accepted it was arguable that wakala transactions were beyond a Kuwaiti company's capacity because its constitution required Shariah compliance. Capacity is governed by the law of the place of incorporation, so an English governing law clause did not answer the point.
Tax: the alternative finance rules
The tax code treats specified Islamic arrangements as if they were loans. For companies, Part 6, Chapter 6 of the Corporation Tax Act 2009 covers "alternative finance arrangements", including purchase and resale (murabaha-type), diminishing shared ownership (diminishing musharaka), deposit, and profit share agency (wakala-type) arrangements, and treats the return as a loan relationship. Section 507 deals with "investment bond arrangements", the statutory term for sukuk. Part 10A of the Income Tax Act 2007 does the same for income tax.
For property, sections 71A and 73 of the Finance Act 2003 provide stamp duty land tax relief for "alternative property finance", so that the financier's purchase and the customer's later acquisition are not double-taxed when conditions are met. Scotland (land and buildings transaction tax) and Wales (land transaction tax) have their own rules, which must be checked separately for property outside England and Northern Ireland.
Regulation
Islamic banks in the UK are authorised by the Prudential Regulation Authority and regulated by both the PRA and the FCA on the same basis as other banks. Retail Islamic home finance is regulated: entering into and administering a "regulated home purchase plan" is a specified activity under article 63F of the Regulated Activities Order. Profit-sharing savings accounts raise structuring questions about capital certainty and deposit protection, and Shariah-compliant funds are authorised and marketed under the ordinary fund rules.
Core Islamic finance structures and how they compare
Most Islamic financings are built from a small number of nominate contracts. Choosing between them is a commercial and tax decision as much as a Shariah one, and Islamic finance lawyers London sponsors use should explain the trade-offs early.
| Structure | How it works | Typical use | Key legal points |
|---|---|---|---|
| Murabaha (including commodity murabaha) | Financier buys an asset and sells it to the customer at cost plus an agreed profit, paid on deferred terms | Working capital, trade finance, revolving facilities, treasury | Genuine ownership and sale sequence; asset identification; no re-pricing once sold; late payment handled without interest |
| Ijara | Financier buys an asset and leases it to the customer for rent, often with a purchase undertaking at the end | Real estate, aircraft, equipment, sukuk al-ijara | Lessor bears ownership risks such as major maintenance and insurance, usually passed back by a service agency agreement |
| Diminishing musharaka | Financier and customer co-own; customer buys the financier's share in instalments and pays rent on the rest | Home purchase plans, commercial property | Co-ownership and trust of land issues; SDLT relief conditions; regulated if a home purchase plan |
| Wakala | Financier appoints an agent to invest funds in Shariah-compliant assets for an expected profit | Deposits, interbank placements, sukuk | Agent's duties and expected profit drafting; capacity and constitutional limits of the parties |
| Mudaraba / musharaka | Profit-sharing partnership; losses fall on capital providers | Investment accounts, project equity, some sukuk | Loss allocation; whether returns can be fixed; purchase undertaking enforceability |
| Istisna'a | Contract to manufacture or construct an asset for delivery later, often paired with a forward ijara | Construction and project finance | Interface with construction contracts and completion risk |
Most deals combine several of these. A project financing may use istisna'a during construction and ijara once the asset is operational, with a conventional tranche running alongside under an intercreditor agreement. Our project finance and banking and finance teams work on those mixed structures together.
Sukuk: issuing and investing through London
Sukuk are certificates representing undivided ownership interests in underlying assets or ventures, rather than debt claims. In practice they are documented much like Eurobonds: a special purpose issuer, often an orphan vehicle holding assets on trust for certificate holders, a declaration of trust governed by English law, a purchase undertaking by the obligor and listing on a recognised exchange.
The UK has used the format itself. HM Treasury issued the first UK sovereign sukuk of £200 million in June 2014, described by the Government as the first sovereign sukuk issued by a country outside the Islamic world. The UK Debt Management Office launched a second issue of £500 million in March 2021, using the Al-Ijara structure, with a maturity date of 22 July 2026.
What matters on a sukuk issuance
- Asset base. The underlying assets must exist, be transferable and remain identifiable throughout the term. Tangibility ratios matter for tradability under prevailing Shariah standards.
- Purchase undertaking. The obligor's undertaking to buy back the assets at a defined exercise price on maturity or default is the economic heart of the deal. Dana Gas shows why it should be governed by English law and drafted to survive arguments about Shariah compliance.
- Disclosure. Offering documents should explain Shariah risk, including the possibility that scholars or courts in other jurisdictions take a different view.
- Tax. Investment bond arrangement treatment depends on statutory conditions; listing affects withholding tax analysis.
Our debt capital markets colleagues handle the programme documents, and our article on sukuk under English law explains the issuer-side mechanics in more detail.
How an Islamic financing runs, step by step
The process looks familiar to anyone who has run a conventional financing, with extra steps for Shariah review and asset mechanics. Islamic finance lawyers London borrowers and banks appoint should build the Shariah timetable into the deal timetable from the first day.
- Agree the commercial terms and the structure. Decide whether murabaha, ijara, wakala or a combination best fits the asset, the cash flows, the tax position and any conventional tranche. Record it in a term sheet the Shariah board has seen.
- Engage the Shariah advisers. Each financier usually has its own Shariah supervisory board. Agree which boards must approve, whether a lead adviser will coordinate, and what they need to see before they issue a pronouncement.
- Diligence the asset and the parties. Confirm title, transferability, insurance, consents and the capacity of each party, including any constitutional requirement for Shariah compliance, as Investment Dar illustrates.
- Draft the English-law documents. A master agreement, asset purchase or lease documents, agency and service agency agreements, purchase and sale undertakings, security and, where relevant, an intercreditor agreement with conventional lenders.
- Obtain the Shariah pronouncement. The board reviews final or near-final documents and issues a fatwa or pronouncement. Late changes may need fresh approval, so freeze the structure early.
- Close and execute the asset steps. Purchases, sales, leases and offers and acceptances must happen in the right order and at the right time. Evidence of each step should be kept, because sequence errors are a common Shariah audit finding.
- Manage the facility. Each new murabaha drawdown, rental reset or asset substitution repeats a mini-process. Agents need clear operational procedures.
Documents and evidence to assemble
A well-organised data room shortens both legal and Shariah review. Expect to gather:
- Constitutional documents for every obligor, with any Shariah objects clause or board resolution requirement highlighted.
- Title documents, valuations and insurance for the underlying assets, including any takaful arrangements.
- Existing financing documents, negative pledges and intercreditor arrangements that could restrict asset transfers.
- Prior Shariah pronouncements and the financier's own Shariah standards, including the AAOIFI or other standards it follows.
- Tax analysis confirming alternative finance treatment and stamp duty land tax relief where property is involved.
- Know-your-customer and source-of-funds material, sanctions screening and, for UK property, Register of Overseas Entities filings where relevant.
- For sukuk, the asset portfolio schedule, servicing arrangements and a disclosure package dealing with Shariah risk.
For security packages, our guide to taking security in the UK explains how charges, assignments and registration at Companies House work alongside Islamic structures.
An English court will enforce the bargain written in an English-law contract. The Shariah board decides whether that bargain is permissible. Good drafting makes sure both answers are the same.
Risks and common mistakes
Most problems in Islamic finance disputes trace back to a gap between the Shariah structure and the English-law drafting. These are the issues Islamic finance lawyers London deal teams see most often.
Relying on a "subject to Shariah" governing law clause
After Shamil Bank v Beximco, an English court will not apply Shariah as the governing law of a contract, and a vague reference to Shariah principles creates litigation risk rather than certainty. The better practice is a clean English governing law clause, a separate acknowledgement that each party is satisfied with the Shariah compliance of the structure, and a waiver of any right to raise non-compliance as a defence. Shariah compliance should be handled through the board's pronouncement and the drafting of the transaction steps, not through the governing law clause.
Ignoring capacity and constitutional limits
A governing law clause cannot cure a lack of corporate capacity. Investment Dar showed that a counterparty whose constitution requires Shariah compliance may argue that a transaction was beyond its powers, and that issue is decided by the law of its place of incorporation. Due diligence should therefore check constitutional documents, obtain local law capacity opinions for foreign obligors, and consider representations and fallback restitutionary drafting that protect the financier if the structure is ever challenged.
Getting the asset sequence wrong
In a murabaha, the financier must own the commodity or asset before it sells it to the customer. In an ijara, rent cannot start before the lease asset is delivered. Operational shortcuts, such as signing sale confirmations before purchase confirmations, can invalidate a transaction in Shariah terms and lead to profit being purified to charity. Agents and treasury teams need written procedures and an audit trail for every step.
Late payment and default provisions that look like interest
Shariah-compliant documents do not charge default interest. Instead, they usually require a late payment amount to be paid to charity, sometimes with a separate actual-cost compensation mechanism, and they accelerate the deferred sale price or trigger a purchase undertaking on default. Lenders need to understand that their recovery on default is driven by these mechanisms, and that the exercise price must be drafted to cover outstanding amounts properly.
Assuming the tax reliefs apply automatically
The alternative finance rules in the Corporation Tax Act 2009, the Income Tax Act 2007 and the Finance Act 2003 apply only where their conditions are met, for example about the parties, the return and the way assets are transferred. A structure that drifts from the statutory model can lose loan relationship treatment or stamp duty land tax relief, producing unexpected costs. Tax advice should be taken before the structure is fixed, and again if it changes.
Ask for the Shariah board's comments on the term sheet, not just the final documents. Most delay in Islamic deals comes from structural objections raised late, when commercial terms, tax analysis and security have already been negotiated around a structure the board will not approve.
Cross-border Islamic finance: Bangladesh, the Gulf and Asia
Much Islamic finance documented in London involves assets, obligors or investors elsewhere. The English documents must work with the local law of the asset, the obligor and the place of enforcement.
Bangladesh
Bangladesh has a substantial Islamic banking sector supervised by Bangladesh Bank, and its government has issued domestic sovereign sukuk since 2020. Bangladeshi groups borrowing under English-law Islamic facilities need local advice on foreign exchange approvals, security over local assets and enforcement. Shamil Bank v Beximco itself arose from a Bangladeshi group's financing, which is why the governing law and waiver drafting matters so much in this corridor. Bangladesh is a party to the New York Convention, so a London-seated arbitration award is usually a stronger enforcement route there than an English judgment; see our guide on enforcing a London arbitration award in Bangladesh.
The Gulf, Malaysia and Singapore
Gulf financiers often follow AAOIFI standards, while Malaysia has a statutory Shariah framework with a central Shariah advisory council. A structure acceptable in one market may need changes in another. Singapore and the DIFC also offer common-law Islamic finance options. Where documents are governed by English law but assets sit in the Gulf, Asia or Bangladesh, the security and transfer steps must follow local law and local counsel should be instructed early.
Arbitration and the Arbitration Act 2025
Many Islamic finance contracts choose London arbitration so that awards can be enforced across New York Convention states. The Arbitration Act 2025, in force since 1 August 2025, introduced a default rule that the law of the seat governs the arbitration agreement unless the parties expressly agree otherwise. Our international arbitration team can review dispute resolution clauses in light of those changes.
How TRW & Co's Islamic finance lawyers London team helps
TRW & Co's London office is authorised and regulated by the Solicitors Regulation Authority. We advise on the English-law side of Shariah-compliant transactions and work alongside the client's chosen Shariah advisers, whose role is to approve the structure. Where advocacy in the higher courts is required, we instruct specialist counsel.
Structuring and term sheets
We compare murabaha, ijara, wakala and musharaka options against the asset, cash flows, tax position and any conventional tranche, and prepare a term sheet the Shariah board can review early.
Facility and asset documents
We draft and negotiate master agreements, purchase and sale undertakings, leases, agency and service agency agreements, security and intercreditor terms under English law.
Sukuk and capital markets
We advise issuers, obligors and arrangers on trust structures, asset schedules, purchase undertakings, disclosure and listing, with our debt capital markets colleagues.
Real estate and project finance
We document Shariah-compliant acquisitions and developments, including diminishing musharaka and ijara structures and SDLT relief conditions, with our real estate finance team.
Bangladesh and cross-border deals
We coordinate English-law documentation with TRW & Co's Dhaka practice on Bangladeshi obligors, security and enforcement, and with local counsel in the Gulf and Asia.
Disputes and restructurings
We advise on defaults, purchase undertaking claims, Shariah-compliance defences and restructurings of Islamic facilities, in court or in London-seated arbitration.
Islamic finance lawyers London clients appoint should also understand the wider market. Our UK–Bangladesh trade and finance and sustainable finance teams advise on green and social sukuk and on trade flows between the two countries. See the full range of our work on our practices page.
Checklist for decision-makers
- Is the structure (murabaha, ijara, wakala, musharaka or a mix) the right fit for the asset, cash flows and tax position?
- Which Shariah boards must approve, and have they seen the term sheet?
- Is the governing law clause a clean choice of English law, with a separate Shariah acknowledgement and waiver?
- Have we checked each party's constitutional capacity and obtained local law opinions for foreign obligors?
- Do the documents produce the intended alternative finance tax treatment and any SDLT relief?
- Are the asset steps sequenced correctly, with procedures and an audit trail for each drawdown?
- Do default, late payment and purchase undertaking provisions cover what the financier needs on enforcement?
- Is the dispute resolution clause right for where the obligor's assets are, including Bangladesh or the Gulf?
To discuss a transaction with Islamic finance lawyers London clients trust for practical advice, contact TRW & Co at info@trw.co or +880 1779 127165, or visit Holborn Gate, 330 High Holborn, London WC1V 7QH.
Frequently asked questions
01Can an English-law contract be governed by Shariah law?
Not as the governing law. In Shamil Bank of Bahrain v Beximco Pharmaceuticals the Court of Appeal held that the choice-of-law rules contemplate the law of a country, and a clause making English law 'subject to the principles of the Glorious Sharia'a' was treated as a choice of English law alone. Parties can still incorporate specific, ascertainable Shariah-derived terms into the contract, but the safer approach is a clean English governing law clause with a separate acknowledgement and waiver about Shariah compliance.
02Is Islamic finance taxed differently in the UK?
The aim of the UK rules is to tax Islamic finance broadly like conventional finance. The Corporation Tax Act 2009 and the Income Tax Act 2007 treat qualifying alternative finance arrangements, such as murabaha, diminishing musharaka and wakala, as loans, and qualifying sukuk as investment bond arrangements. The Finance Act 2003 provides stamp duty land tax relief for alternative property finance. Each relief has conditions, so the structure should be checked by tax advisers before it is fixed.
03Who approves whether a transaction is Shariah compliant?
The financier's Shariah supervisory board, or a Shariah adviser appointed for the deal, reviews the structure and documents and issues a pronouncement or fatwa. Lawyers do not certify Shariah compliance. Our role is to document the approved structure accurately under English law and to make sure that operational steps, such as the order of purchases and sales, follow what the board approved. Engaging the board at term sheet stage avoids late structural changes.
04What happens if an Islamic financing is later said to be non-compliant?
Under an English-law contract, alleged non-compliance with Shariah is generally not a defence to payment, as Shamil Bank v Beximco and Dana Gas v Dana Gas Sukuk show. Risk remains where a party lacked capacity under its own constitution, as argued in Investment Dar v Blom, or where enforcement takes place in a jurisdiction whose courts take a different approach. Well-drafted documents include waivers, capacity representations and fallback provisions.
05Do Islamic banks in the UK need a special licence?
No. There is no separate Islamic licence. Islamic banks are authorised by the PRA and regulated by the PRA and FCA like other banks, and must meet the same capital, liquidity and conduct requirements. Specific activities can be regulated in their own right, such as entering into or administering a regulated home purchase plan. Product design, especially for profit-sharing accounts, must fit the regulatory definitions that apply to deposits and investments.
06How are sukuk different from conventional bonds?
Sukuk represent ownership interests in underlying assets or ventures, and investors' returns come from those assets, for example rent under an ijara, rather than interest on debt. In practice they are documented much like Eurobonds, with an English-law declaration of trust, a special purpose issuer, a purchase undertaking from the obligor and a listing. The asset base, tangibility and the purchase undertaking need careful attention.
07Should an Islamic financing with a Bangladeshi borrower use English courts or arbitration?
It depends on where the borrower's assets are and how enforcement would work there. Bangladesh is a party to the New York Convention, so a London-seated arbitration award can usually be enforced through the Bangladeshi courts under the Arbitration Act 2001. Enforcing an English judgment in Bangladesh raises different questions. We review the dispute resolution clause with TRW & Co's Dhaka practice before signing.
Sources and official materials
- Shamil Bank of Bahrain v Beximco Pharmaceuticals [2004] EWCA Civ 19 — Court of Appeal on Shariah and English governing law
- Dana Gas PJSC v Dana Gas Sukuk Ltd [2017] EWHC 2928 (Comm) — Enforceability of a sukuk purchase undertaking
- Investment Dar Co KSCC v Blom Developments Bank SAL [2009] EWHC 3545 (Ch) — Capacity and Shariah objects clauses
- Corporation Tax Act 2009, Part 6 Chapter 6 — Alternative finance arrangements and investment bonds
- HM Treasury: Government issues first Islamic bond — UK's first sovereign sukuk, 2014
- UK Debt Management Office: second sovereign sukuk — £500 million Al-Ijara sukuk launched March 2021
- Arbitration Act 2025 — Reforms to English arbitration law
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.