Q: How does a change in intention affect Zakat on business assets?
A: The Zakat treatment for business assets is principally based upon the intention at the time of purchasing an asset or stock. Assets purchased to resell are Zakatable business assets. However, a person can have different intentions when purchasing an asset, therefore, it is worth considering the different types of intentions and their consequences in respect to Zakat liability.
Clear intention to resell
If an asset is purchased with the express intention to resell, it will be a Zakatable business asset regardless of when it is eventually sold.
Clear intention for personal use
If an asset besides gold, silver or currencies was purchased for personal use, then such an asset will not be Zakatable.
No clear intention
If an asset is purchased without any intention or without a clear and express intention, then the asset is not Zakatable.
A conditional intention
If an asset is purchased for personal use with an intention of selling only if there is capital appreciation, such an asset will not be Zakatable. Similarly, if an asset is bought for personal use or as buy to let with the intention to sell one day in the future upon favourable market conditions, the asset will not be Zakatable.
Clear intention to resell in future but leased in the interim
If an asset is bought to resell but is leased in the interim, the property or asset will be zakatable if the intention to resell remains and it is still treated as saleable in the interim.
All four schools of jurisprudence agree that for a business asset to be Zakatable, an intention to resell that asset must be present at the time of purchasing that asset.
The majority of scholars assert that an intention to resell must coincide with a commutative transaction like a sale. An intention to resell which coincides with non-commutative transactions like gifting and inheritance will not make an asset a zakatable business asset.
A business asset will no longer be Zakatable if a person changes his mind about selling the item and stops trading that asset.
Personal items up for sale will not be Zakatable whilst on the market. Only the net cash from the eventual sale on one’s Zakat anniversary is Zakatable.
And Allah knows best!
Mufti Faraz Adam