Zakat on property and other fixed assets

The Property and other fixed assets category does not include the home you live in but includes property purchased with the intention to make profit from reselling. In addition, the value of leased property is not subject to Zakat. Only the rental income is subject to Zakat.

Is Zakat due on the house I live in?

• There is no Zakat due on the house that a person owns and lives in or in the house that he or she owns but their dependents (wives / children etc.) live in.
• There may, however, be Zakat applicable on any other property or building that a person owns.

Typical Scenarios:

• Living in the property – No Zakat due.
• Using the property for business and trade – No Zakat is due on the property itself however there is Zakat due on business goods and profits from the business
• Rental income: whatever is left over from your rental income on your Zakat date after any expenses, maintenance, mortgage and so on will join the rest of your cash balance and will be Zakatable at 2.5%.
  It is important to note that any rental income from properties owned should be added to one’s cash balance for Zakat purposes.

Mortgages

Scholars give an allowance for up to one lunar year’s worth of the non-interest portion of the mortgage payments to be deducted but this allowance should only be taken if one feels that not doing so significantly impacts one’s ability to make the repayments in a timely fashion.

To Summarise

• The house in which you live is not subject to Zakat
• If a property or other fixed asset has been purchased with the express intent to resell, then the entire value of the property / asset is subject to Zakat
• If there is any other intention, then it is not subject to Zakat
• For example, you purchase an additional property other than the residential house & the intention for purchasing it is just to invest cash in it. In this scenario, the second house is not to live in, so there is no zakat due on it because it is a long-term investment.
• However, if you make an intention to sell your property, it will not be subject to Zakat. Upon the sale, any remaining proceeds on your annual Zakat day will be liable for Zakat.
  Fixed assets
• Like property, Zakat is due based on the use of the fixed asset and your intention. For fixed assets such as land, Zakat is not due on the land if you have simply inherited or purchased it with no particular intention or as a store of wealth.
• If it was bought for investment, then Zakat is due on the approximate sale price of the land every year, on the Zakat anniversary. This means that the land needs to be valued each year to see if it’s value has increased, depreciated or remains the same. It’s always important to check to ensure that you do not over – or underpay. You can delay the payment for each year for the time when the land is actually sold. In this case it will be due for each of the previous years based on the land value at the time.

Common Questions:

If we have additional property other than the residential house and if the property is purchased just to invest cash in it, is the house a Zakatable asset?

If you have a second house which is neither to live in, nor for renting out then there is no Zakat due on it while it remains a long-term investment.

If you intend to sell it afterwards, only upon selling it will the proceeds be Zakatable. The proceeds will be added to your Zakatable assets. The value of the house which was initially bought as a long-term investment will not be subject to Zakat.

Of course if you do manage to sell it then Zakat may well become due on the cash proceeds that you are in possession of on your Zakat payment date.

I own two apartments which I am renting out however my parents are receiving the money from it. Should I still pay Zakat even if I don’t receive the money?

If you are transferring the funds every time the rent is paid, in that scenario, if your Zakat date falls before you have transferred that month’s rent, you will liable to pay Zakat on those funds. Rent which is transferred to your parents is not liable to Zakat for you.

I have an Islamic mortgage with monthly mortgage payments and rental income. How do I work out my Zakat for this?

On your Zakat anniversary, whatever residual or net cash you have remaining from your rental income should be added to your cash balance for Zakat purposes. If you have already spent the funds, then no Zakat is due.

I have signed an agreement to purchase a property in the last month of which 90% of my liquid cash will be used. I wanted to know given my current obligation and commitment for funds to be used in the next few months whether these funds should be included as part of my Zakat calculation i.e. added as a Zakatable asset rather than subtracted as a liability.

Until contracts have been exchanged and paying the deposit becomes a certain liability, Zakat should be paid on the cash. This is because there remains a possibility, at least in theory, of the sale/purchase not proceeding for whatever reason. Until it’s absolutely certain that the cash will leave you, Zakat should be paid.

Doing so will also remove any uncertainty and maximise the blessings of the process for you insha’Allah.

Is Zakat compulsory on land which has been given as a gift from my father? The land is in my name and is a piece of land in a residential area. If so, was the Zakat compulsory on me before I grew up and had my senses?

Zakat is not due on the land if you simply own it with no clear intention about what to do with it.

Is there Zakat due on land that is not developed? If yes, how is it calculated?

The answer depends on the intention with the land.

If the land has simply been inherited or purchased with no particular intention or as a store of wealth, then no Zakat is due.

If it was bought for investment, meaning capital appreciation purposes specifically, then Zakat is due on the approximate sale price of the land every year. One can delay the payment for each year for the time when the land is actually sold. In this case it will be due for each of the previous years based on the land value at the time.

Is Zakat payable on properties that you’ve bought the lease of? So, you’re the leaseholder, not the freeholder. Do you pay Zakat on it, and how is it calculated? If you own your property that you lived in, but you leave the property and rent out a cheaper accommodation so that you can get an income from it, do you pay Zakat on the value of your property? What do you do if you live in your home part of the year?

1. If one has purchased a leasehold, it is fair to assume that it has been purchased either to live in or to rent out and not with the prime intention of resale with capital appreciation. If this is correct, then only whatever is left over from one’s rental income on one’s Zakat anniversary needs to be considered.
2. In these circumstances, there is no Zakat. If you own a house and don’t live in it and don’t have any clear intention for its use, then there is no Zakat.

I have a query about how I calculate my Zakat when I have a mortgage to pay off and a large amount of money to pay off for borrowing money from relatives to help with my house deposit.

I pay approximately 300 GBP back to my relatives on a monthly basis and 750 GBP monthly on my mortgage.

Everything outstanding that you owe to your family is deductible if there is no binding contract in relation to the repayment terms.

The mortgage payments should not be deducted. Scholars give an allowance for up to one year’s worth of the non-interest portion of the payments to be deducted but this allowance should only be taken if one feels that not doing so significantly impacts one ability to make the repayments in a timely fashion. If it is an Islamic home purchase plan then these are not considered to be debt and therefore nothing is deductible

When calculating Zakat on annual rental income, should you deduct annual capital repayments on a mortgage, as well as service charge repayments and any other expenses, such as maintenance?

With rental property, the only thing to worry about is whatever is left over from the income that has been generated over the course of the year. So in fact, as long as you have accounted for the remaining cash from your rental income in your cash balance, there is nothing further to consider. Capital repayments, service charge, expenses etc that are upcoming will simply reflect in next year’s cash balance on your Zakat anniversary, i.e. the fact that you will have made those expenditures will mean that your cash balance will be lower and therefore that will factor into your Zakat calculation.

The only deductibles today are any overdue expenses or liabilities.

I have a mortgage for £130k so I have let the property out. Every month the tenants pay £1000. £500 of this is used to pay off the mortgage and the other £500 goes towards the bills in my mother’s house.

The money that I make from the house is not saved rather utilized so is it accountable for Zakat?

I live with my husband in his house. The house above was bought in order for my mother to have some sort of income when I left to get married.

Zakat would only be payable on any cash that you have remaining from your rental income. If all the cash has been used, then there is nothing to include from it in your calculation.

I currently have a mortgage and its monthly instalment is £550 per month.

To calculate my Zakat, will I need to deduct £6,600 (£550 x 12 months) as my liabilities?

Scholars do permit deducting up to 12 month’s worth of payments, but only the non-interest or principal portion of the payment. You can determine this split from your lender.

If you have an Islamic finance product then this is not considered to be debt and therefore nothing is deducted.

What if I own a property with rental income?

If you own property other than your home for the purposes of long-term investment without intention to resell then Zakat is due on rental income only. Please note if you are a property developer and you have already mentioned this in the Business section of our online calculator , do not input this information twice. If this is the case, and if rental income has not been included within your cash section, then please state its value in your Zakat calculation.

Reviewed on 29/11/2021