GeneralPersonal Finance

Calculate Zakat on Property, BTL, and Family Home

This article simply breaks down when zakat is or isn’t payable on property.

We will discuss:

  1. Is zakat due on property?
  2. What zakatable assets are in property?
  3. Practical Example
  4. Where you can calculate zakat on property easily

This article is part of our Zakat FAQ series. You should also definitely check out our comprehensive zakat calculator.

1. Is zakat due on property?

Yes and no.

Zakat is due on any property that you own for investment purposes.

Zakat is not due on:

  1. The home you own and live in.
  2. A home you own in which any dependents (wives/children etc) live.
  3. A buy-to-let property (but you do have to pay it on the rent of course).

2. What zakatable assets are in property?

Zakat is payable in the following instances:

(a) You own a house with the express intention to resell, then the entire value of the property is subject to zakat.

But if you only own a percentage of the house (e.g., as you have a musharakah mortgage) then you should only pay zakat on the amount owned by you.

However, if the mortgage is a murabaha mortgage, then the entire property value is zakatable (deducting any debts that are due to the bank within the next year). This is because in a murabaha mortgage you are the ultimate owner.

(b) You purchase a house for rental income then you only pay zakat on the rental income from that asset that remains in your possession on your zakat date.

This, for example, is a buy-to-let investment. This includes properties you own via property crowdfunding platforms like Yielders.

(c) If you bought a house with the intention to resell initially, but now your intention has changed to it becoming a long-term investment, your zakat calculation changes accordingly.

3. Practical Example

Let’s go through each of the scenarios listed above with an example:

(a) If you own a house with the express intention to resell

You purchase a property at auction. Your intention is to make some improvements and “flip” the property, i.e., selling the property on.

Whether that process is intended to take 3 months or 3 years is irrelevant. Zakat will always be due on the full amount of the property you own.

(b) You purchase a house for rental income. You only pay zakat on the rental income from that asset that remains in your possession on your zakat date.

Example 1:

You buy a property with a sharia-compliant BTL mortgage. You intend to rent out the property and benefit from the annual income which is £15,000.

On your zakat date when you come to calculate his zakat on this property, you realises that of the £15,000 rental income:

  • £12,000 went out in repaying the mortgage,
  • £2,000 was spent on refurbishment costs; and
  • £1,000 remains.

You will pay zakat on the remaining £1,000 if your overall wealth on his zakat date is above nisab.

Example 2

You invest £10k with Yielders.

After taking out any fees that are due, you have £600 for the annual income from this investment. You still have the full amount in your bank on her zakat calculation date.

Zakat will be due on the £600 if your overall wealth on her zakat date is above nisab.

(c) If you bought a house with the intention to resell initially, but now your intention has changed to it becoming a long-term investment, your zakat calculation changes accordingly.

You bought a house with the intention of reselling in 2017. For three years, you paid zakat on the full amount whilst you was trying to sell the property. This is just as you did in (a).

After your 2020 zakat payment but before your 2021 zakat became due, you decided in the interim that because the house was too difficult to sell, you would simply rent this out for the long term.

In 2021, you will therefore only pay zakat on the rental income in the same way you did above in (b), Example 1.

4. Calculate your zakat here

Here is a simple and easy way to calculate your zakat using our comprehensive zakat calculator.

1 Comment

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1 Comment. Leave new

  • Obaidullah Siddiqui
    April 29, 2021 6:53 pm

    For property , it only talks about houses and rental properties. Don’t see anything for landed property/plots for long term investment that you want to keep in case you need them for bad times or for your kids etc.

    Appreciate your insight on it.

    Reply

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