No zakat is due on the house you own and live in. Money you are saving to buy a house, however, is zakatable like any other savings until it is spent, according to Britain’s National Zakat Foundation (NZF). A second property is treated according to your intention: bought to resell, it is zakatable on its value; held for rent or long-term use, it is not.
Reviewed by Hafiz Maqsood Ahmed.
For many families, a house deposit is the largest pool of cash they will ever hold, so the rule on house savings can produce a large zakat bill in the years before a purchase. The positions below are those of named bodies; The Halal Times does not issue rulings. Our guide to zakat covers the nisab and the basic conditions.
The home you live in
“There is no Zakat due on the house that a person owns and lives in,” NZF says in its guidance on property, and the exemption extends to a house occupied by one’s dependants. Islamic Relief Worldwide likewise lists a house and a car among personal belongings that are exempt. The exemption applies however valuable the home is.
Savings for a future house
NZF’s scholar Mufti Faraz Adam has written that “savings are Zakatable regardless of what is being saved for. Thus, money saved to purchase a house in future is Zakatable.” The reasoning is that the money remains cash in the owner’s control until it is spent.
The same applies to a deposit. Until contracts are exchanged and paying the deposit becomes a certain liability, NZF says, zakat should be paid on the cash. Once the purchase is legally committed, the deposit is no longer the buyer’s cash.
Example: A couple holds $80,000 in a savings account on their zakat date, intended for a down payment next year. Zakat at 2.5 percent is $2,000, provided their total zakatable wealth exceeds the nisab.
A second home or investment property
NZF draws the line by intention:
- Bought to resell: zakatable each year on its full market value, like trade goods.
- Held as a long-term investment or for rent: the property itself is not zakatable; any rental income that remains on your zakat date is added to your cash.
- A holiday home for personal use: not zakatable.
The International Islamic Fiqh Academy reached the same conclusion on rented property in 1985, ruling that zakat falls on the rent received, not on the building. Our guide to zakat on rental income explains that calculation. Property bought before completion, such as off-plan apartments, follows the same intention test.
Can mortgage debt reduce zakat?
Bodies differ on how much of a mortgage can be deducted from zakatable wealth.
| Body | Position |
|---|---|
| National Zakat Foundation (UK) | Up to one lunar year of the non-interest portion of a conventional mortgage, where not deducting it would seriously impair repayments; Islamic home finance is not treated as debt |
| AMJA | Only the payment currently due, not the full balance or a year of payments |
| Islamic Relief Worldwide | Only that month’s payment for an installment debt such as a mortgage |
The Assembly of Muslim Jurists of America (AMJA) set out its position in a 2008 fatwa on mortgage deduction. None of these bodies allows deducting the entire outstanding mortgage, which would wipe out most homeowners’ zakat. Valuation errors of this kind are among the common mistakes in calculating zakat.
Summary
- Your own home: no zakat.
- Cash saved for a home, including a deposit not yet committed: zakatable.
- Property bought to resell: zakatable on market value.
- Rental property: zakat on rental income held, not on the property.
- Mortgage: at most the portion due within a short period can be deducted, depending on the body followed.
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