The Purification Calculation Handbook — A Step-by-Step Practical Guide

Data as of May 2025. Financial figures cited are approximate, based on publicly available FY2024 annual reports. Verify all figures against current annual reports before performing your own calculation. Educational content only.

I. What Purification Is and Why It Exists

Purification is the practice of identifying and donating any portion of investment returns that originated from non-compliant business activity. It is a personal accounting mechanism, not a regulatory requirement or legal obligation. No third party enforces it. The investor calculates the amount, donates it to charity, and records the transaction.

The concept arises from a practical reality: most compliant companies are not 100% pure. A technology company might generate 98% of its revenue from software sales and 2% from interest on cash deposits. A healthcare company might generate 97% of its revenue from pharmaceutical sales and 3% from financial investments. Under MSCI Islamic screening criteria, both companies pass the revenue purity screen — the non-compliant income is below the 5% threshold. But the investor has still received a proportional share of that non-compliant income as part of their return.

Purification is the mechanism for neutralising that income. The investor calculates what proportion of their return came from non-compliant sources and donates that amount to charity. The investor's investment position is unchanged. The purification amount is not a fine or penalty — it is an accounting step that removes the non-compliant portion of income from the investor's personal accounts.

It is worth being clear about what purification is not. It is not a substitute for proper screening — you cannot hold a categorically non-compliant company (a bank, a casino operator, a tobacco company) and "purify" your way to compliance. Purification applies only to companies that pass the screening criteria but have a non-zero non-compliant revenue figure. For companies that fail the screening criteria, the appropriate response is not to invest, not to purify.

For non-Muslim investors who apply ethical screening as a pure investment discipline, purification has a useful analogy: it is similar to an investor in an otherwise admirable company discovering that it sources a small amount of materials from a supplier with poor practices. Some investors respond by divesting entirely; others stay invested but consciously support initiatives that offset the concern. Purification is the financial equivalent — staying invested in a broadly compliant company while neutralising the small non-compliant income component through charitable giving.

II. When Purification Applies — and When It Does Not

Purification Applies When:

You hold a company that passes all screening criteria but has a non-zero non-compliant revenue figure — for example, a technology company with interest income below the 5% threshold.
You hold a mixed ETF or index fund with non-compliant holdings, and you receive dividends from that fund.
You receive capital gains from selling a position — some approaches include a proportional purification on gains, though this is less universally applied than dividend purification (see Section V for a full discussion).

Purification Does Not Apply When:

You hold a fully compliant company with zero non-compliant revenue in the reporting period — for example, a semiconductor company with no interest income and no prohibited business activities.
You hold a commodity-backed fund (GLD, SLV) — there is no income from prohibited activity in a physically-backed commodity ETF.
You hold a dedicated Islamic equity ETF (HLAL, SPUS, ISWD) — the fund has already screened its holdings; no further purification is required on dividends received from the fund itself.
The non-compliant revenue is zero in the reporting period — a company that had no interest income in a given year requires no purification for that year.

Practical Threshold

If the calculated purification amount rounds to less than £1 (or the equivalent in your currency), the administrative cost of the calculation exceeds the value. Apply proportionality — the calculation does not need to be done to the penny. A purification amount of £0.08 does not require a separate charitable donation; it can be accumulated across the year and donated as part of a larger annual purification payment.

III. The Core Calculation — Step by Step

The Formula

The purification formula is:

Purification Amount = (Non-Compliant Revenue ÷ Total Revenue) × Income Received

Where "Income Received" means dividends received plus any other distributions from the holding in the period. For capital gains purification (if applied), "Income Received" is replaced by "Realised Capital Gain."

For Individual Stocks — Step by Step

Step 1: Find the company's annual report. The annual report (10-K for US companies, Annual Report and Accounts for UK companies) is the primary source. It is available free of charge from the company's investor relations website or from the relevant regulatory filing database (SEC EDGAR for US companies, Companies House for UK companies).

Step 2: Locate total revenue and non-compliant revenue line items. Total revenue is typically the first line of the income statement. Non-compliant revenue — primarily interest income — is usually found in the notes to the financial statements, in a section titled "Other Income and Expense" or "Financial Income." For most companies, the relevant figure is interest income from cash and investments.

Step 3: Calculate the non-compliant revenue ratio. Divide non-compliant revenue by total revenue. Express as a percentage.

Step 4: Multiply by dividends received in the year. This gives the purification amount.

Step 5: Donate the purification amount to charity. Record the calculation and the donation.

For ETFs — Step by Step

Step 1: Obtain the ETF's sector or holdings breakdown. This is available from the fund provider's website, typically updated monthly. The iShares, Vanguard, and State Street websites all publish sector breakdowns for their ETFs.

Step 2: Apply business activity screens to estimate non-compliant weighting. Use the sector breakdown to identify which sectors are non-compliant (Financials, tobacco companies in Consumer Staples, casino operators in Consumer Discretionary, defence contractors in Industrials). Sum their weightings to get the estimated non-compliant weighting.

Step 3: Use the non-compliant weighting as a proxy for non-compliant revenue ratio. This is an approximation — the actual non-compliant revenue ratio would require analysing each holding individually. For most investors, the sector-level approximation is sufficient.

Step 4: Multiply by dividends received. Non-compliant weighting (as a decimal) × dividends received = purification amount.

Step 5: Donate and record.

IV. Worked Examples — Three Companies

Example 1: Apple Inc. (AAPL)

Apple's FY2024 financial data (from Apple's 10-K filing, fiscal year ended 28 September 2024):

Total net sales (revenue): approximately $391 billion
Interest income (approximate, from Other Income/Expense note): approximately $3.7 billion
Non-compliant revenue ratio: $3.7B ÷ $391B ≈ 0.95%

Scenario: An investor holds 10 shares of Apple. Apple paid a quarterly dividend of approximately $0.25 per share in FY2024, totalling approximately $1.00 per share annually. The investor receives approximately $10.00 in annual dividends.

Purification amount: 0.0095 × $10.00 = $0.095 ≈ $0.10

The investor donates 10 cents. The position is otherwise clean.

Note: Apple's revenue purity ratio of approximately 0.95% is comfortably within the 5% MSCI threshold. The purification amount is a micro-figure for most retail investors. Apple is broadly considered compliant under market-cap-denominated methodologies; under MSCI total-assets criteria, it fails the cash-and-securities screen (see Article 1). Investors using MSCI criteria who choose not to hold Apple do not need to apply purification; those who hold Apple under other methodologies apply the 0.95% purification rate.

Example 2: Microsoft Corporation (MSFT)

Microsoft's FY2024 financial data (from Microsoft's 10-K filing, fiscal year ended 30 June 2024):

Total revenue: approximately $245 billion
Interest income (approximate, from Other Income/Expense note): approximately $4.4 billion
Non-compliant revenue ratio: $4.4B ÷ $245B ≈ 1.8%

Scenario: An investor holds 5 shares of Microsoft. Microsoft paid a quarterly dividend of approximately $0.75 per share in FY2024, totalling approximately $3.00 per share annually. The investor receives approximately $15.00 in annual dividends.

Purification amount: 0.018 × $15.00 = $0.27

The investor donates 27 cents.

Note: Microsoft passes all MSCI Islamic screening criteria. Its debt-to-assets ratio is well within the 33.33% threshold, its cash-and-securities ratio is within the entry buffer, and its revenue purity ratio of approximately 1.8% is within the 5% threshold. Microsoft is broadly considered compliant under all major methodologies. The purification reflects a small but non-zero interest income component.

Example 3: Tesla Inc. (TSLA)

Tesla's FY2024 financial data (from Tesla's 10-K filing, fiscal year ended 31 December 2024):

Total revenue: approximately $97.7 billion
Interest income (approximate, from Other Income/Expense note): approximately $1.8 billion
Non-compliant revenue ratio: $1.8B ÷ $97.7B ≈ 1.8%

Scenario: Tesla does not pay a dividend. Purification on dividends does not apply.

If the investor sells shares for a capital gain, two positions exist on whether purification applies to that gain:

Conservative approach: Apply the same non-compliant revenue ratio to realised capital gains. Reasoning: the share price appreciation reflects all business activity, including non-compliant revenue streams. Purification amount = 1.8% × realised gain.
Practical approach: Apply purification only to dividends. The complexity of attributing capital gains to specific revenue streams makes dividend-only purification the workable standard for most individual investors. Under this approach, no purification is required for Tesla since it pays no dividend.

Both positions are defensible. This guide presents both without prescribing one. The investor should decide which approach to apply and apply it consistently across all holdings.

All figures are approximate, based on publicly available annual report data. Data dates noted above. Verify against current filings before performing your own calculation.

V. Handling Capital Gains

Dividend purification is the most widely applied form of purification — it is straightforward, income-based, and directly analogous to the revenue purity calculation for individual companies. Capital gains purification is less universally agreed upon across methodological traditions.

The conservative approach applies the same non-compliant revenue ratio to realised capital gains. The reasoning is that share price appreciation reflects all business activity, including non-compliant revenue streams. If a company generates 2% of its revenue from interest income, then 2% of the capital gain from selling that company's shares is attributable to the interest income component. Purification amount = non-compliant revenue ratio × realised capital gain.

The practical approach applies purification only to dividends. The reasoning is that capital gains are driven by many factors — market sentiment, sector rotation, macroeconomic conditions, and business performance — that cannot be reliably attributed to specific revenue streams. The complexity of attributing capital gains to non-compliant revenue makes dividend-only purification the workable standard for most individual investors. Under this approach, a company that pays no dividend requires no purification regardless of its non-compliant revenue ratio.

Neither approach is definitively correct. The conservative approach is more thorough but more complex. The practical approach is simpler and more widely applied. Investors should choose one approach, apply it consistently, and document their choice in their record-keeping.

VI. Where to Donate the Purification Amount

The purification amount should go to genuine charitable activity. The key requirement is that the donation must not benefit the investor personally — you cannot donate to your own charity, your employer's charity foundation, or causes that return benefit to you in any form.

There is no requirement to donate to specifically religious charities. General charitable organisations are entirely appropriate. The purpose of purification is to remove non-compliant income from your personal accounts and direct it to productive social use — any legitimate charity achieves this purpose.

UK examples of appropriate recipients include Oxfam, Cancer Research UK, the British Red Cross, local food banks, educational charities, and housing charities. The choice of charity is entirely at the investor's discretion, provided the donation is genuine and does not benefit the investor.

The donation is not tax-deductible in the UK for purification purposes. It is a personal ethical accounting step, not a gift aid donation for income tax relief. However, if the investor chooses to structure the donation via Gift Aid separately, the tax relief is on the donation itself — the Gift Aid treatment is independent of the purification calculation. An investor who donates £56 as a purification amount can also claim Gift Aid on that donation if they are a UK taxpayer, but the Gift Aid claim is a separate tax matter, not part of the purification process.

VII. Record-Keeping — A Simple System

Maintaining a simple annual log is the most practical way to track purification calculations and donations. The log should be updated once per year, at tax time or portfolio review time. The following format is suggested — it can be maintained as a spreadsheet or a simple table in a document.

Date	Holding	Dividend / Income Received	Non-Compliant %	Purification Amount	Donated To	Date Donated
Jan 2026	AAPL (10 shares)	£10.00	0.95%	£0.10	Oxfam	Feb 2026
Jan 2026	MSFT (5 shares)	£15.00	1.8%	£0.27	Oxfam	Feb 2026
Mar 2026	QQQ ETF (50 units)	£25.00	12%	£3.00	Local food bank	Mar 2026
Jun 2026	XLV ETF (30 units)	£18.00	7%	£1.26	Cancer Research UK	Jul 2026

The non-compliant revenue ratio for individual stocks should be updated annually, when the company publishes its annual report. The ratio changes year to year as revenue composition changes. A company that had 1.5% interest income in FY2023 might have 1.8% in FY2024 if interest rates rose and its cash holdings generated more income. Update the ratio once per year using the most recent annual report.

For ETFs, the non-compliant weighting is based on the fund's sector breakdown, which is published monthly by most fund providers. An annual review using the most recent sector breakdown data is adequate for most investors. The weighting changes slowly as the index composition evolves; a monthly update is not necessary unless you are managing a large portfolio where precision matters.

VIII. Practical Summary — The One-Page Process

For each investment that generates income, the purification process is:

Find the non-compliant revenue ratio — from the annual report (for individual stocks) or from the ETF's sector breakdown (for funds).
Multiply by income received in the year — dividends, distributions, or capital gains (if applying capital gains purification).
Donate the result to a charity of your choice that does not benefit you personally.
Record the calculation and the donation in your annual log.

Do this once per year, at tax time or portfolio review time. For a typical portfolio of 10–15 broadly compliant holdings, the entire process takes approximately 30 minutes per year.

The purification amount for a diversified portfolio of broadly compliant stocks — companies passing all MSCI screening criteria with non-compliant revenue ratios below 5% — will typically be less than 2% of total dividend income. For an investor receiving £1,000 per year in dividends from a compliant portfolio, the purification amount is likely to be in the range of £10–£20. This is a small and entirely manageable figure.

For investors holding mixed ETFs (SPY, QQQ, XLK), the purification amounts are larger because the non-compliant weighting of the fund is higher than the non-compliant revenue ratio of individual compliant stocks. An investor holding £10,000 of SPY with a 28% non-compliant weighting and a 1.5% dividend yield would receive approximately £150 in dividends and owe approximately £42 in purification. This is still manageable, but it illustrates why dedicated Islamic ETFs (which require no purification) are simpler for investors who want to minimise administrative complexity.

IX. Common Questions

What if I cannot find the interest income figure in the annual report? For most large-cap companies, interest income is disclosed in the notes to the financial statements under "Other Income and Expense" or "Financial Income." If the figure is not separately disclosed, it is likely immaterial — the company may not generate significant interest income. In this case, the purification amount is zero or negligible.

What if the company's annual report is not in English? For non-UK/US companies, the annual report may be in another language. Most large-cap companies listed on major exchanges publish English-language annual reports or provide English translations of key financial data. For companies where this is not available, use the financial data provided by financial data services (Bloomberg, Refinitiv, Morningstar) which typically include interest income as a line item.

Do I need to calculate purification for every holding, or only for holdings that pay dividends? Under the dividend-only approach, purification applies only to holdings that pay dividends. If a holding pays no dividend and you have not sold any shares, no purification calculation is required for that holding in that year. Under the capital gains approach, purification applies when you sell shares and realise a gain, regardless of whether the holding pays dividends.

What if I receive dividends from a holding in a foreign currency? Convert the dividend to your home currency at the exchange rate on the date of receipt, then apply the purification calculation in your home currency. The donation should be made in your home currency.

Can I donate the purification amount to a religious institution? Yes, provided the religious institution is a genuine charitable organisation and the donation does not benefit you personally. A mosque, church, synagogue, or other religious institution operating as a registered charity is an appropriate recipient.

Disclaimer: Educational content only. Not religious advice. Not financial advice. Figures cited are approximate and based on publicly available annual report data as of the dates noted. Verify all figures against current annual reports before performing your own calculation. The purification calculation is a personal ethical accounting practice; this guide does not constitute religious guidance or a fatwa. Investors should consult appropriate advisers for guidance specific to their circumstances.