Sharia-compliant ISAs

A Sharia-compliant ISA is a normal ISA in every way that matters to the taxman and the regulator: it follows the same rules, sits inside the same £20,000 annual allowance, and its returns are free from UK Income Tax and Capital Gains Tax. What makes it different is how the return is generated. Instead of paying interest, which Islamic finance prohibits, the provider pays an "expected profit rate" on cash accounts, or screens the investments held in a stocks and shares version so they exclude businesses that do not meet Islamic principles¹.

Anyone can open one, regardless of their religious beliefs². When Which? analysed Moneyfacts data in September 2026, there were 71 savings and cash ISA accounts registered as Sharia-compliant, of which 14 were cash ISAs, 46 were fixed-rate savings accounts and 11 were variable-rate savings accounts³. So the market is real, reasonably sized, and worth understanding even if you are simply comparing rates.

What makes an ISA Sharia-compliant

An ISA is a tax wrapper, not a product in itself, and the Sharia-compliant label describes how the money inside the wrapper is handled. A cash ISA normally works by the bank paying interest on your deposit. Islamic finance treats interest, the charging of money for money, as prohibited, so a Sharia-compliant cash account is structured differently: the provider uses your money in activities that comply with Islamic principles and pays you a share of the profit that activity generates, quoted as an expected profit rate¹.

The result for you as a saver looks very similar. You deposit money, the provider quotes a rate, and you receive a return. The difference is the legal basis of that return: profit from an underlying arrangement rather than interest on a loan. AJ Bell's guidance describes the same structure, noting that these accounts have "an expected profit rate" instead of paying interest⁶.

For a stocks and shares ISA, being Sharia-compliant means something different again. The ISA itself is simply a tax-free investment account that lets you hold a range of different investments⁷. A Sharia-compliant version screens what can be held, excluding companies involved in activities Islamic finance prohibits, such as alcohol and gambling, and businesses whose finances breach rules on interest and debt. The screening is done at the level of the funds and shares you choose, not by the ISA wrapper itself.

It is worth being clear about what the label does not mean. Sharia-compliant is not the same as ethical or sustainable, although there is overlap in the screening. The two approaches exclude different things for different reasons, and a fund can carry one label without the other. If you are comparing options, the ethical and sustainable ISAs page explains that approach separately.

Profit instead of interest: how returns are paid

On a conventional savings account, the rate is an annual equivalent rate (AER) of interest: a contractual promise to pay a set amount for the use of your money. Sharia-compliant accounts instead pay an "expected profit rate" (EPR)¹. The provider puts your money into activities that comply with Islamic principles, and the profit those activities make is shared with you.

In practice, providers quote an EPR in much the same way a bank quotes an AER, and the two numbers are directly comparable when you are shopping around. The important distinction is legal rather than practical: because the return is a share of profit rather than a contractual interest payment, it is described as expected. The provider aims to deliver the quoted rate, and in practice has generally done so, but the wording reflects the underlying structure¹.

The tax position inside the ISA is unaffected by the difference. A cash ISA protects your savings from the income tax that would otherwise apply to interest, and the same protection applies to profit paid inside a Sharia-compliant cash ISA⁸. Returns earned in an ISA are free from UK Income Tax and Capital Gains Tax⁵.

Who checks that the ISA is Sharia-compliant

For a product to carry the Sharia-compliant label, someone has to verify that the way money is used, and what is invested in, actually complies with Islamic principles. Providers of Islamic finance products use scholars qualified in Islamic law to oversee this, and the screening of investments in a Sharia-compliant stocks and shares ISA is carried out against criteria those scholars set. The provider's own product terms state who supervises the arrangement and what the screening covers, so the names of the supervising scholars and the criteria applied are set out in the documents you receive before you open the account⁶.

Separately, the ISA wrapper itself is supervised by the state. HMRC approves ISA account managers, and approval carries undertakings about how accounts are run⁹. The Financial Conduct Authority regulates the firms that offer ISAs, and the FSCS advises checking whether the particular activity a firm carries out for you is regulated by the Prudential Regulation Authority or the FCA before assuming what protection applies¹⁰.

In other words, two layers of oversight sit on top of each other. The sharia layer checks that the product behaves as Islamic finance requires. The UK regulatory layer, HMRC, the FCA and the FSCS, checks that the provider is authorised, that the ISA wrapper follows the tax rules, and that you have somewhere to complain if it does not. Neither layer substitutes for the other.

Types of Sharia-compliant ISA: cash and stocks and shares

There are four main types of ISA available to adult savers: the cash ISA, the stocks and shares ISA, the Innovative Finance ISA and the Lifetime ISA¹¹. Sharia-compliant versions exist mainly in the first two.

Sharia-compliant cash ISAs. These work like any other cash ISA: you deposit money, the return is quoted up front, and the money is not exposed to stock market ups and downs. Of the 71 Sharia-compliant savings and cash ISA accounts registered in September 2026, 14 were cash ISAs, alongside 46 fixed-rate savings accounts and 11 variable-rate savings accounts³. Many Sharia-compliant accounts are fixed-term, which means you usually cannot withdraw money during the fixed term without a penalty, unless the product rules allow it⁵.

Sharia-compliant stocks and shares ISAs. A stocks and shares ISA is a tax-free investment account that lets you put money into a range of different investments⁷. Several different types of fund can be held in an ISA, including equity funds, tracker funds, unit trusts and OEICs⁷, and Sharia-compliant versions of these funds apply screening to what they hold. Only authorised or recognised funds may be held in a stocks and shares ISA under current law¹², which applies to screened funds just as it does to any other.

Innovative Finance ISAs. The Innovative Finance ISA has been explicitly linked to sharia-compliant arrangements in the legislation: a 2023 amendment added a reference to "profit", enabling those who wish to invest in alternative finance arrangements of this kind to do so within the ISA wrapper¹³. These are higher-risk products, and the innovative finance ISA page covers them in detail.

ISA allowance: £20,000 a year across all your ISAs

The annual ISA allowance is £20,000 per year⁴, and it is shared across everything you pay in, not given to each account separately. You can put up to £20,000 in a cash and/or stocks and shares ISA in a tax year, and any income generated can grow completely tax-free¹⁴. If you split your money between a Sharia-compliant cash ISA and a conventional stocks and shares ISA, the two subscriptions together must stay within £20,000.

The allowance does not roll over if you do not use it. Money you take out of an ISA loses its tax-free status, and the allowance is used by what you pay in during the tax year, not by the balance you hold¹⁵. The ISA allowance page explains how the allowance works in full, and the ISA deadline page covers the timing, since the allowance resets on 6 April each year.

Since 6 April 2024, the rules on how many ISAs you can pay into have been relaxed. You can now open and pay into more than one ISA of the same type in a tax year¹⁶, and the legislation permits an individual to subscribe to more than one ISA account of the same type in a year, along with partial transfers of current-year subscriptions¹⁷. There is no specific limit on how many ISAs you can hold overall¹⁸. This means a Sharia-compliant cash ISA and a conventional cash ISA can run side by side, sharing the allowance between them.

Expected profit rate or actual return: how each one behaves

The two types of Sharia-compliant ISA behave very differently, and the difference is worth spelling out because the word "expected" means something different in each case.

On the cash side, the expected profit rate is quoted before you open the account, and the provider manages the underlying arrangements to deliver it. The rate is not a contractual interest payment, which is why it carries the word "expected", but the account is still a deposit-style product: your capital is not riding on stock markets. Access depends on the terms, and on fixed-term accounts you usually cannot withdraw during the term without a penalty, unless the product rules allow it⁵.

On the stocks and shares side, the return is whatever the screened investments actually deliver, and the value moves with those investments. Nothing is quoted as expected, because the outcome genuinely is unknown, and the account is ideally left for five years to mitigate losses from short-term market falls. Many stocks and shares ISA providers allow investors to hold cash on a temporary basis while they are out of the market, but interest rates on that cash will usually be negligible¹⁹.

The practical reading is this: an expected profit rate on a cash ISA is a quoted figure the provider aims to deliver, while a stocks and shares ISA return is an outcome nobody can promise. Comparing an EPR with a conventional AER is reasonable when both are cash products. Comparing either with a stocks and shares ISA is comparing unlike things, because the investment version carries the risk of loss as well as the chance of growth.

Who can open one and how to apply

Anyone can open a Sharia-compliant account, regardless of their religious beliefs². The eligibility rules are the ISA rules, not religious rules. For an adult ISA you need to be eligible under the general ISA conditions, and Crown employees serving overseas, or individuals married to such employees, are also eligible to open ISAs¹⁸. The who can open an ISA page sets out the residency and age conditions in full.

Opening an account follows the same process as any other ISA: you apply to the provider, usually online, and the provider checks your eligibility and sets up the account. You can open as many different adult ISA accounts as you like, as long as you keep within the ISA allowance rules⁵.

For children, a Junior ISA can also be Sharia-compliant. A Junior ISA application may be made by a person who is over 16 and who has parental responsibility in relation to the eligible child, or by the eligible child themselves⁹. NS&I's Junior ISA terms add that a 16 or 17 year old resident in the UK, or a UK Crown servant, or someone married to or in a civil partnership with a UK Crown servant, can open a Junior ISA for themselves²¹. The Junior ISAs page covers the child versions in detail.

Transferring an existing ISA without losing its tax-free status

Money saved in previous years can be shifted from ISA to ISA, switching provider, without losing the tax breaks⁸. That applies to moving money into a Sharia-compliant ISA just as it does to moving between conventional providers. The key rule is mechanical: the money must move between providers as a transfer, inside the ISA wrapper, not as a withdrawal followed by a new deposit.

The reason is the allowance. If you withdraw money from an ISA and pay it back in, the new payment uses part of the current year's £20,000 allowance, and money taken out loses its tax-free status on the way¹⁵. A transfer does not use the allowance in the same way, which is why the process matters. Which?'s guidance on Innovative Finance ISAs makes the same point: do not withdraw your money out of your other ISAs to transfer, as it could impact your current ISA allowance²².

Where the money can go depends on what it is held in now. Funds invested in a stocks and shares ISA can only be transferred to another stocks and shares ISA; cash ISA funds can transfer to a stocks and shares ISA or to another cash ISA¹¹. One further rule has appeared in recent legislation: changes were made that prevent transfers from non-cash ISAs into cash ISAs for the under 65s²³. If you are under 65 and thinking of moving investment money into a Sharia-compliant cash ISA, check the current position on the cash ISA limit changes page before you start. The how to transfer an ISA page gives the step-by-step process, and the partial transfer page explains splitting an ISA across providers.

Where Sharia-compliant ISAs carry risk

No ISA is risk-free, and the risks differ sharply between the cash and investment versions.

The expected rate may not be delivered. Because the profit rate is expected rather than contractual, there is in principle a risk that the actual profit falls short of the quoted figure. In practice providers have generally paid the expected rate, but the structure of the product means the wording is not just decoration¹.

Fixed terms restrict access. Many Sharia-compliant accounts are fixed-rate, and you usually cannot withdraw money during the fixed term without a penalty, unless the product rules allow it⁵. If you may need the money early, check the access terms before committing, and read the fixed rate cash ISA page for how terms and penalties work.

Investment risk in stocks and shares versions. A Sharia-compliant stocks and shares ISA carries the same market risk as any other: the value of the investments can fall as well as rise, and screening does not protect you from that. Screening also narrows the range of investments, which concentrates the portfolio in the sectors that pass the criteria.

Transfer mistakes cost allowance. Withdrawing instead of transferring is the most common way savers lose out, because the money loses its tax-free status on withdrawal and re-depositing uses the current year's allowance¹⁵.

Innovative Finance ISAs are higher risk again. Where a Sharia-compliant arrangement sits inside an IFISA, the underlying lending is not protected in the way a deposit is, and the 2023 legislative amendment that enabled profit-based arrangements within the wrapper does not change that¹³. The comparison page on innovative finance ISAs versus stocks and shares ISAs sets the risks side by side.

Protection for your money and where to complain

All of the Islamic banks currently offering Sharia-compliant accounts are covered by the Financial Services Compensation Scheme (FSCS)¹. For a cash ISA, that means deposit protection applies in the same way as for any other bank or building society account, including providers that exist only online²⁴. The FSCS is the UK's statutory compensation scheme, accountable to the Prudential Regulation Authority and the Financial Conduct Authority.

A stocks and shares ISA is protected differently. These may be covered under investment protection rather than deposit protection²⁴, and the FSCS publishes guidance on what investment protection covers and when you can claim¹⁰. The distinction matters: investment protection covers you if the provider fails or acts wrongly, not if your investments fall in value. The FSCS's own rules also direct deposit claims to the PRA's Depositor Protection rules, which is the framework that applies to cash ISA deposits²⁵. Providers are required to tell you this at the outset: the standard initial disclosure document states "We are covered by the FSCS. You may be entitled to compensation from the scheme if we cannot meet our obligations."²⁶ The how your ISA is protected page explains the limits and how they apply.

If something goes wrong, you can bring a complaint about your ISA to the Financial Ombudsman Service²⁷. The usual route is to complain to the provider first, and then to the ombudsman if you are not happy with the response or have not received one within around eight weeks¹⁹. Complaints about stocks and shares held in an ISA are covered by the ombudsman's consumer guidance on ISAs²⁸, and you may also complain about advice you received or the way an adviser or investment company managed your ISA²⁷. The complaining about an ISA provider page walks through the process.