Halal ISA

What makes an ISA halal?

The ISA itself, the tax-free wrapper, is a UK tax product and is the same whether or not it is Sharia compliant. What differs is how the return inside it is generated. A conventional Cash ISA pays interest. An Islamic Cash ISA instead uses a structure such as Wakala, where the bank acts as your agent to invest the deposited money in Sharia-compliant activities, or Murabaha, a cost-plus trading arrangement, and shares the resulting profit with you. Because interest, or riba, is prohibited in Islamic finance, providers describe this return as an expected profit rate rather than an AER (Annual Equivalent Rate).

For investing, a Sharia-compliant Stocks and Shares ISA holds funds that have been screened against Islamic principles, described in the next section, rather than a fund selected purely on financial criteria.

An Islamic ISA is not restricted to Muslim customers. Anyone who meets the normal ISA eligibility rules, being 18 or over and a UK resident for a Cash ISA, can open one, whatever their own religion, in the same way anyone can choose a conventional account.

How Sharia screening works

Sharia-compliant funds generally exclude companies whose core business involves activities such as conventional (interest-based) banking and insurance, alcohol, gambling, pork products, weapons, or adult entertainment. Many funds also apply financial ratio screens, for example limiting how much debt or interest-bearing income a company can have relative to its size. Even a company outside the excluded sectors can fail screening on its balance sheet alone. A Sharia supervisory board or scholar typically reviews and signs off a fund's methodology. Different boards can reach different conclusions on borderline cases, so screening criteria are not identical across every provider.

Sharia supervisory boards and standards

Most Sharia-compliant funds and Islamic banks publish which Sharia supervisory board oversees them, made up of qualified scholars who review the product's structure and holdings on an ongoing basis, not just at launch. Some providers follow published standards, such as those from the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), as a starting point for their screening rules, while others use their own board's independent methodology. Checking who sits on a provider's board, and how often it reviews the fund, is a reasonable way to judge how seriously a product treats compliance.

Sharia-compliant funds sometimes hold a small amount of incidental, non-compliant income, for example interest earned briefly on uninvested cash within the fund. Many funds calculate this amount and "purify" it by donating an equivalent sum to charity, either automatically within the fund or by disclosing a figure for investors to donate themselves. Fund factsheets usually state whether and how this is done, and how much it came to in the last period.

Islamic Cash ISAs and the wider Cash ISA market

Islamic banks compete for deposits alongside conventional banks, so an expected profit rate can sit above or below what conventional easy access or fixed rate Cash ISAs are paying at any given time. Comparing the Islamic Cash ISA table on this page against the wider best Cash ISA rates is worth doing before assuming an Islamic account will pay more or less than a conventional one, since it varies rather than following a fixed pattern.

Halal Stocks and Shares options

Some general-purpose investment platforms offer specific Sharia-compliant funds or ETFs alongside their wider range, so you can hold Islamic investments within an ordinary Stocks and Shares ISA. Other providers build their whole service around Sharia-compliant portfolios rather than offering them as one option among many. Either way, the underlying investments, not the platform, are what determines whether an option is Sharia compliant, so check a fund's own factsheet and screening methodology rather than assuming from a platform's name alone.

A note on religious guidance

This page describes how Sharia-compliant ISAs are commonly structured and regulated in the UK. It is not a religious ruling, and interpretations of Sharia compliance can vary between scholars and schools of thought. For guidance on what meets your own standard, check with a scholar you trust.