VATFIN8330 - Islamic products: Lease and lease plus purchase: Lease only (ljara)

Description

This product is a basic leasing product that can be used to lease a variety of assets, including cars, fridges, televisions and property (both residential and commercial). The financial institution (e.g. a bank) acquires title to the asset and leases it to its customer. At no time does title to the asset pass to the customer, nor is it expected to pass. If the customer wishes to purchase the asset at a later date a separate agreement is drawn up.

VAT treatment (lease only)

Consideration for supplies made under this arrangement will be treated in the same way as other forms of leasing agreements. Where the consideration is for a supply of services, other than property, it is taxable at the standard rate of VAT. Where the consideration is in regard to property, the liability will follow the normal rules for property (please see Notice 708 Buildings and construction, Notice 742 Land and Property and Notice 742A Opting to tax land and buildings).