Sharia Law and Charitable Giving

Research shows that Muslim donors give significant amounts to charitable causes. Giving to charity has always been of fundamental importance in the Islamic faith, but for those individuals living in the UK, charitable giving needs to be compliant with Sharia and English law. This article explores Sharia-compliant charitable giving and its implications under English law in more depth. 

Forms of Islamic giving 

Charity in Sharia Law does not necessarily have to be a simple monetary donation. It can take several forms: 

1. Zakat (obligatory charity)

Zakat constitutes one of the five fundamental pillars of Islam. Zakat requires Muslims to give 2.5% of their wealth each year if they meet the Nisab threshold i.e. the minimum amount of wealth a Muslim must have before paying Zakat. The Quran sets out eight categories for those eligible to receive Zakat – including for the poor, needy, those in debt, the cause of Allah, the stranded traveller, and to free captives or bring hearts together for Islam. Those who help to administer Zakat are also eligible to receive it.

Zakat can be paid at any point during the year, although there is also Fitrana/ Zakat ul Fitr, an obligatory payment of approximately £5 during Ramadan, which has to be met before the Eid prayer and covers four handfuls of a staple food, such as flour or rice for someone.

2. Sadaqah (voluntary charity)

Sadaqah is not subject to the same conditions as Zakat. There are many types of Sadaqah, including:

• Sadaqah Wajibah – restricted charitable giving, according to specific categories set out by the Quran;
• Sadaqah Nafilah – giving out of generosity and compassion;
• Sadaqah Jariyah - giving that is continuous or perpetual; and
• Qard Al-Hasan - a loan, without interest, to help someone in need.

3. Waqf (Islamic perpetual trusts/endowments) 

Although not specifically mentioned in the Quran, Waqf is a form of Sadaqah giving that aims to provide those in need with access to facilities and resources, and typically involves the donation of buildings, land and other assets (rather than cash donations) for charitable purposes as a form of religious endowment. This is similar to a charitable trust under English law and could amount to dedicating a school, mosque, or hospital to benefit local communities.

The UK perspective 

Under English law, UK charities can help those in need whilst adhering to Islamic principles on charitable giving, and may focus on UK-based, Sharia-compliant projects or direct their donations abroad. 

Overseas donations by UK charities will be compliant with English law - so long as HM Revenue & Customs are satisfised that the funds will be utilised for ‘charitable purposes’ as set out in section 2 of the Charities Act 2011. Some of these purposes are analogous to the Zakat categories above, such as:

• the prevention or relief of poverty;
• the advancement of religion; and
• the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage. 

Gifts to UK charities also offers benefit from a UK tax perspective - for both charities and individual donors. The Gift Aid scheme means that, provided certain conditions are met, an extra 25% could be added onto donations. Inheritance tax advantages may also be available.  A 36% rate for inheritance tax – compared to the ordinary 40% - applies for those who leave 10% or more of their net estate to a registered charity. 

When considering Sharia-complaint charitable giving, it’s worth noting that foreign charities do not benefit from the same tax reliefs. There used to be a provision extending tax reliefs to certain non-UK charities, namely based in the EU or the EEA, which was removed in the 2023 Spring Budget. The transitional period ends in April 2024, and so any non-UK charities that had asserted their status for charity tax reliefs will cease to be qualifying charities for the purposes of UK charitable tax reliefs. Any UK donors giving to Sharia-compliant EU or EEA charities may therefore be affected by this change. 

Tax efficiency and cross-border giving 

Rules on charitable giving vary from jurisdiction to jurisdiction. Sharia-compliant, tax-efficient cross-border giving can therefore be difficult to facilitate. 

UK donor-advised funds (“DAFs”) (essentially, accounts held and managed under an umbrella charity), may be useful. Donors make charitable contributions in exchange for immediate tax deductions and can recommend grants from the fund to charities over time. The trustees of the DAF have discretion to choose whether a proposed grant is approved and can accord with Islamic principles if that is the Donor’s wish. 

Summary 

There are many different forms Islamic charitable giving can take. Care needs to be taken to ensure that philanthropy complies with Sharia principles and UK law, whilst also being carried out in a tax-efficient manner. 

For further information, please contact our expert team.

You can also contact our experts Matthew Briggs in the High Net Worth & International team and Sarah Al Jourani in the Family Team directly via our website.