Chancellor Alistair Darling is expected to close a loophole in Sharia finance rules which has enabled commercial property investors avoid paying stamp duty on more than £1bn of deals, The Times reports.

Next week’s budget could tighten rules on mortgages which comply with Islamic law after commercial property developers discovered a quirk in the legislation which enabled them to escape stamp duty.

The 2005 Budget brought in measures to correct the anomaly but unintentionally created a tax avoidance loophole property developers have flocked to exploit. More than £1bn of commercial property deals over the past two years have escaped stamp duty at 4%.

Senior city tax lawyers, commercial property agents and a head of asset finance for one of Britain’s biggest banks all say increasing numbers of office sales valued from £50m to £100m or more have been using the latest Sharia-compliant financing to take advantage of the loophole, although many of those buying and selling the properties have no cultural imperatives to use Sharia.

Further reading:

Treasury hopes to make UK 'gateway to Islamic trade'

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