With Hugh James’s home town of Cardiff having one of the longest established Muslim communities in the UK, Zoe looks at how anyone considering making a Sharia law compliant will can look to avoid paying too much inheritance tax.
I read an article recently which highlighted the potential inheritance tax implications for Muslims who prepare DIY or very basic Sharia compliant wills. In short, such wills can leave an estate wide open to inheritance tax.
Sharia law is a moral code and the religious law of Islam. Its most influential sources are the Qur’an and the teachings and examples of the prophet Muhammad.
Sharia law is extremely important to many practising Muslims who believe that if this law is followed, they will be rewarded with a life of eternal bliss once they die. Under Sharia law there are five categories which regulate human actions. These are: obligatory, recommended, permitted, disliked and forbidden.
The need to plan for one’s death falls under the category of obligatory actions which must be followed as stated under the Qur’an.
Estate planning is very important to Muslims and the prophet Muhammad is quoted as saying:
“It is not permissible for any Muslim who has something to will, to stay for two nights without having his last will and testament written and kept ready with him.”
The Qur’an sets out definite rules which a Muslim must follow when making a will.
Division of a person’s estate under Sharia law
Under Sharia law, an individual can distribute up to a third of their estate however they wish so long as that third passes to someone that is not already entitled to a fixed share under Sharia law.
The remaining two thirds are distributed in accordance with the law as follows:
- Asurviving husband is entitled to a quarter of his wife’s estate or half if there are no children;
- a surviving wife is entitled to one eighth of her husband’s estate and a quarter if there are no children;
- depending on the entitlement of the spouse, the deceased’s mother is entitled to one sixth of the estate or one third if the deceased had no children or one quarter if the deceased’s father is still alive;
- if the deceased has no spouse, father, or children, the mother will receive one half of the estate;
- if the deceased leaves behind a spouse and daughters, the deceased’s father will receive one sixth of the estate plus any surplus once the estate has been divided accordingly between the other relatives;
- if the deceased is survived by at least one son, the father still receives one sixth but will not receive any of the surplus;
- if the deceased has no children, the deceased’s father will take the surplus after the estate is distributed between the other relatives;
- any children take the surplus estate once the surviving spouse and parents take their fixed share of the estate;
- male children/grandchildren take 50% more of the estate than the female children/grandchildren;
- if the deceased had only a daughter, she will receive half of the surplus estate and, if there are no other relatives, the daughter will receive the other half as well;
- if there are two or more daughters only, they will share the two thirds of the estate equally if there are no other relatives to inherit; and
- if there is a son, all of the children will share the surplus estate but the daughters will receive half of what the son receives.
As Sharia law provides for very strict guidance when making a will, without a proper will and advice, this can lead to unexpected inheritance tax charges on death.
Within the UK, if a person leaves their entire estate to their spouse who is also a resident in the UK then their estate is exempt from inheritance tax.
However, under a Sharia compliant will, only a fraction of the estate is left to the surviving spouse, thereby potentially opening up the deceased’s estate to inheritance tax.
Because of these rules, there are also restrictions on how couples may hold property together, including their home. As such, it is important to review the ownership of homes, bank accounts and other jointly owned property to ensure that on the death of one partner, any property can pass in accordance with Sharia law. The alternative can involve having to alter the position post-death which can lead to further tax.