How to purify your portfolio (and what to do with non-compliant holdings)

Finding out isn't a disaster

Discovering that some of your holdings aren't Shariah compliant is more common than it feels. Workplace pension defaults, an old fund you picked up years ago, a share tip that turned out to include a bank or brewer: it happens to a lot of people, and it's entirely fixable. There's no judgement here, just a clear path forward.

The two-part move

The path has two parts, and the order matters. First, stop new money going in: redirect future contributions away from the non-compliant holding straight away, that part is easy and immediate. Second, exit the holding: sell out of what you already hold.

On timing, many scholars encourage exiting promptly once you know a holding is non-compliant, rather than holding onto it indefinitely. An orderly exit over a short period, rather than an instant panic-sell, is a practical approach many people take, especially if selling all at once would trigger an unnecessary loss. This is general guidance, not a ruling: a qualified scholar can confirm what applies to your specific holdings and timeline.

How to purify, step by step

1. List what you hold and how long you've held it

Write down each non-compliant holding and roughly when you bought it. This sounds basic, but it's the foundation for every step that follows: you can't purify income you haven't identified.

2. Find the impermissible income share

For a fund, the fund factsheet for equivalent Islamic funds often publishes a purification ratio, a percentage of income considered impermissible (usually from interest or a small amount of non-compliant business activity). For an individual stock, screening apps like Zoya or Musaffa estimate this ratio for you, based on the company's interest income and any non-compliant revenue as a share of the total.

3. Purify dividends received

For any dividends you were paid while holding a non-compliant investment, give away the impermissible share (from step 2) to charity. If a company paid a dividend and 3% of its income was deemed impermissible, then 3% of that dividend is the amount to give away.

4. Purify capital gains

Approaches differ among scholars on capital gains. The conservative approach many people follow is to donate the portion of the gain attributable to the period the company was actually non-compliant, using the same impermissible income ratio as a proxy. This is general guidance, not a ruling: a qualified scholar can confirm what applies to your specific situation, particularly if the amounts involved are significant.

5. Donate without expecting reward

Per many scholars, this donation isn't sadaqah in the usual sense, where you'd hope for reward. It's purification, cleansing money that shouldn't have been yours in the first place. Any registered charity is a suitable recipient; there's no requirement it goes anywhere specific.

6. Keep a simple record

Note what you purified, how much, and when, even a simple spreadsheet row per holding. It means you're not starting from scratch if you're ever asked, and it gives you peace of mind that the job is actually done.

Where the money goes next

Once you've exited and purified, redirect future money into diversified, Shariah-screened funds. If you're investing outside a pension, the ETF explorer compares every UK-listed halal option. If this was inside a workplace pension, most providers now offer a Sharia fund option as an alternative to the default: see the workplace fund guide for how to ask your provider to switch you over.

None of this needs to happen overnight, and getting it right matters more than getting it done in a single afternoon. Work through the steps at a pace that works for you.