Association Between Zakat And Property  

Post : May 19, 2022

The Prophet (PBUH) said: "Giving charity wipes away sins just as water extinguishes fire."

Zakat is one of the five pillars of Islam and is obligatory for all Muslims who possess wealth above a certain level.

This article will help you understand the association between Zakah and Property and enlighten you on which properties you have to and don't have to pay Zakat for. 

Is Zakah Due On Property?

The answer is both yes and no. 

There are properties for which Zakat is due and properties for which Zakat is undue. 

Properties for which Zakat is not payable ; 

  • Zakat is not due on the house you own and live in.
  • If the house is owned by you and your dependables (family) are living in it, nor do they have to pay Zakat for it.
  • A property used to conduct business or trade. (Zakah is due on the profits made by the business)
  • If you own agricultural land, zakat is not due for the land, but Zakat should be paid for its income. 
  • A property you have lent to let. (Zakat is not due for the property. However, zakat should be paid for the rent you receive.)  
  • Zakat is not due on all assets. However, it is due on all assets that generate an income. 

Properties for which Zakat is Payable ; 

If an asset or property is purchased to re-sell it, then the entire value of the property will be subjected to Zakath. 

Concept of Musharakah and Mudharaba

The concept of Musharakah is applied when you own only a percentage of the property. Thus, your payable Zakat amount is due only on the percentage of your property. 

If your Property is a Murabaha mortgage, you are liable to pay Zakah for the entire property as, technically, the property is wholly owned by you. 

Suppose a land or property is bought with the intention of re-selling, but you decide to invest, then Zakah is due on the approximate sale price of the asset on the Zakah date. 

If you purchase a property to rent, you have only to pay Zakah for the rental income and not the property. 

Some Practical Example

Here are some examples to better understand the above situations: 

(a) If you intend to resell the house you own. 

It doesn't matter how long it takes. It could be 3 months or 3 years. You have to pay Zakat for the 

You buy a property at some auction. You intend to improve it and flip it, selling it when you purchase. 

(b) If you own a rental property, the zakat should be paid on the rental income. 

Example 1

You rent it out after buying a property that meets the sharia-compliant mortgage. The annual income from the rent is $24,000.

On the zakat date, you have to calculate the zakat, and you have to do it to your rental income:

$20,000 spent on mortgage repayment. 

$2,000 for refurbishment costs

$2,000 balance.

You have to pay zakat for the balance amount as well if your zakat date is beyond Nisab (we'll define Nisab below). 

Example 2

For a $10k worth of investment, you have to calculate zakat as below. 

Once all dues are settled, you will have an annual income of $600 from your investment. But the total amount is in the bank when calculating the zakat. 

So zakat will be on $600 if the overall wealth on zakat date is beyond Nisab. 

(c) If you purchased a house intending to resell, but later on, your intention changes. You now want it as a long-term investment; if this happens, the zakat calculation will be different. 

You purchased a house intending to resell in 2018. So for around 3 years, the zakat was calculated on the whole amount. This is while you were trying to sell it, just like situation (a). 

After the 2021 zakat date and payment, before 2022 due, you have decided to rent it out instead of reselling because it's too complicated otherwise. 

In 2022, you will have to pay zakat on your rental income as you did in (b). 

Understanding Nisab 

Before being obliged to Zakat, a Muslim's minimum amount is known as Nisab. The Nisab value lets a Muslim see whether they can pay Zakat. 

Latest Blogs

May 25, 2024

Superannuation and Retirement Planning in Australia

Superannuation is a pivotal element of retirement planning in Australia, designed to provide financial security for retirees. This compulsory scheme mandates that employers contribute a portion of their employees' earnings into superannuation accounts, fostering a culture of savings and investment that benefits individuals and the broader economy. Despite its strengths, the superannuation system faces several […]

May 24, 2024

Islamic and Behavioral Economics Guidance on Home Buying

Purchasing a home is one of the most significant decisions we make in our lives, involving not only financial considerations but also deep emotional and cognitive involvements. Drawing from the behavioural insights in Daniel Kahneman's Thinking, Fast and Slow, and deeply rooted Islamic teachings, this blog post offers a personalised exploration of how to navigate […]

1 2 3 67