Debts and liabilities in the context of paying Zakat
Once you’ve worked out how much you own which is eligible for Zakat (if you haven’t, you can use our Zakat Calculator), you need to work out what you can take off.
It’s acceptable to take away one year’s worth of debt payments from your Zakat amount, but ideally, this should only be done if paying Zakat is likely to stop you from being able to afford the debt payments.
If you’re likely to be able to repay the debt and you will not be affected by paying Zakat, then we advise that the debt shouldn’t be taken off.
What has Zakat got to do with debt?
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 bare trust (or a naked trust) is a basic trust in which the beneficiary has the right to the assets within the trust, alongside the income generated from the capital from within the trust. This typically happens when they are 18 or 16, depending on the country, so naturally, these are used to pass assets onto younger people. In the meantime, the trustees are responsible to look after the trust.
Zakat is a fair concept, it is not imposed to unfairly take funds from you and leave you without the means to go about your day to day life at the standard you are used to. Everything in Islam is fair masha’Allah and Zakat is no different.
Certain liabilities/allowances can be deducted from your Zakatable assets before calculating how much Zakat you owe. Some debts must be included in your Zakat calculation, others do not need to be. Debts and liabilities when calculating Zakat are very important factors that must be taken into account.
What you can take off:
- Debts that need to be fully paid off within 12 months
- Up to 12 months instalments of longer-term debts which are due to be repaid over several years
- Arrears and/or overdue payment
What can’t you take off:
- Future expenses and bills which are not yet due e.g. next month’s rent or bills
- Debts that are not payable at all in the next 12 months e.g. a student loan which is not owed until study is complete and a person is earning a certain amount
- Unlawful payments such as interest. Interest is not allowed in Islam but if a person does engage in interest or has interest due on debt this can’t be taken off the Zakat amount.
Your Questions Answered
Q: Do outstanding debts (e.g. student loans) impact what I have to pay Zakat on?
For long term debts, such as mortgages or student loans, only the amounts which are due to be paid imminently, or are overdue, at the time of the Zakat payment should be deducted for calculation purposes.
Student loans in particular, in the vast majority of cases, are deducted at source anyway and since one never sees that wealth, it is not worthy of deduction. The other point to note here is that when one is at university then there is no requirement to pay back any of the debt at the time and so nothing should be deducted at that stage either.
Q: What’s the difference between personal debts and long-term debts, when it comes to paying Zakat?
Any personal debts can be deducted. By personal debt, we mean a loan between friends or family that is recallable at any time.
Let’s say your friend lent you £500 and said you could pay it back in six months’ time. They could still demand it from you immediately, at any time. Such loans are deductible from the Zakatable assets of the debtor and are added to the Zakatable assets of the creditor before Zakat is paid. In this case you would subtract £500, and your friend would add £500 in their calculation.
Long-term debts like student loans and mortgages are different because the lender cannot demand the outstanding balance at any time they feel like it.
In this case, scholars give the allowance of up to 12 months’ worth of non-interest portion of upcoming payments to be deducted from one’s assets before calculating Zakat. However, this allowance should only be taken if, by not doing so, one feels that one’s ability to make the repayments is impacted.
Let’s say I have £10,000 today and my upcoming payments for my mortgage are £12,000. Either I can pay £250 of Zakat on £10,000 or subtract £12,000 and pay no Zakat at all. The question is, by paying £250 of Zakat today, am I really affecting my ability to pay £12,000 back over the next 12 months? This seems unlikely and so the allowance should only be taken if one is really in a difficult situation, e.g. lost job and no income and fearing the risk of being unable to make repayments.
Allah knows best
Approved by Mufti Amjad 9th August 2023