Debts owed to you
Zakat is payable on strong debts, i.e. money that is owed to you that you are confident will be paid. This may include personal loans to friends and family. This does not include outstanding wages, dowry, inheritance or assets held in trust (other than assets held under a Bare Trust).
A debt that is owed to you is still classed as an asset depending on certain criteria being met. It is classed as a personal asset because you are likely to get it back.
See Personal liabilities, debts and loans for other debts that are owed by you.
I gave someone a loan some years back. They eventually defaulted on that loan.
I came to know recently that Zakat is due on a loan where the person has not lost hope of recovering.
My scenario is as such:
I give someone a loan for 2 years. In the first year, I had no reason to not expect that loan back (ie I’m still hopeful of being paid) but by the second year, I’ve lost hope of getting it back.
Now many years have passed and I know I’m not getting that back…
What I’m wondering is do I have to still pay the Zakat on that 1st year of the loan when I expected it to be paid?
Yes, you should pay the Zakat for the 1st year if, as you say, you had a fair expectation on your Zakat anniversary of being repaid.
Since this would have been the right thing to have done at the time, the obligation to make up for this unpaid Zakat remains even if subsequently there was a default.
What if you think that you are unlikely to receive your payment?
If there is a debt owed to you immediately, or between now and your Zakat date, which is likely to be repaid, then the value of the debt should be added here and you should pay Zakat on it. If however, you think there is a good chance that you will not receive the money that is owed to you on time, or you are not sure when you will receive it, then you do not need to pay Zakat on this until you actually receive repayment.
What if my repayment isn’t due yet?
If you have lent someone money but it is not due for immediate repayment or within your current Zakat year, then this should not be added to your calculation.
Do you have an example of how to calculate debts owed to you?
As an example, on 1st Ramadan last year, Ahmad has lent £4800 to Farooq, which is paid back in instalments at £100 per month. The following year, on 1st Ramadan, Farooq has managed to repay £1200.
Ahmad is calculating his Zakat that he pays on 10th Ramadan every year. The only amount of the debt that he includes in his Zakat payment is the £1200 that he has received (which will be reflected in his cash figure) and any repayment that he expects before or on 10th Ramadan.