Sharia law is being used by house buyers posing as Muslims to dodge stamp duty, it was revealed yesterday.
A scheme, brought in by Labour in 2005, allows followers of Islam to buy property without paying the tax.
Paying interest is banned under Sharia law, so Muslims are allowed to buy a house and then sell it on to an offshore financial company.
They then lease the house from the company instead of taking out a mortgage, which would include interest payments. Stamp duty, which is applicable to all properties worth £125,000 and over, does not have to be paid on properties which are immediately sold on.
But the loophole, which costs the Treasury £40million a year, is now being used by some who pretend to be Muslim.
Sultan Choudhury, from the UK Islamic Finance Secretariat, said: “It was certainly not envisaged that some tax advisers would manipulate the legislation on behalf of their clients to avoid paying stamp duty at all.”