Zakat on property

http://darulfiqh.com/is-there-zakat-on-leased-out-property/

Question:

I own a house which I rent out.  Do I have to give zakāt on that property?

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh. 

In essence, only the following categories are zakātable:

1)     Gold and silver

2)     Cash

3)     Merchandise

4)     Agricultural produce

5)     Animals and livestock

A property on lease is not subject to zakāt.[1]  The rental received from the tenant will be added to one’s total wealth and will be subject to zakāt.

And Allah Ta’āla Knows Best

Mufti Faraz ibn Adam al-Mahmudi,www.darulfiqh.com

http://darulfiqh.com/do-i-have-to-pay-zakat-on-my-property/

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

 In essence, only the following categories are zakātable:

1)     Gold and silver

2)     Cash

3)     Merchandise

4)     Agricultural products

5)     Animals and livestock

 Personal belongings such as a house, car and clothes are not subject to zakāt.[1] 

And Allah Ta’āla Knows Best

Mawlana Faraz ibn Adam,www.darulfiqh.com

Zakat on Property-Share Purchased with the Intention of Re-sale 

Question #: 5727 

Date Posted: 21-10-2004 

<QUESTION>

I have a share in a property which will be built by 2006 after which I intend to sell straight away. At present I am still paying for the property in instalments and the last payment will be in 2006. How/when do I pay zakat on this property and the money I have put aside for instalments? 

<ANSWER>

In the name of Allah, Most Compassionate, Most Merciful,

If you have actually purchased your share in the property, meaning the deal is complete and the instalments paid are part of the total sum towards the purchase of the property, then in such a case, Zakat will not be obligatory on this money paid as instalments towards the purchase of the property.

If, however, the deal is not yet complete, meaning that you have not actually purchased the share in the property, rather the instalments paid are merely something that is given in advance; then in such a case, Zakat will be obligatory on this money.

You can discover this by looking at the agreement on the official documents or by inquiring from the company.

As far as the land or property is concerned, you state that you are purchasing (or have purchased) it with the intention of investment and re-sale, hence the rulings of business wealth would apply here. 

Goods that are purchased with the intention of re-sale are referred to as 'merchandise'. If one purchased a piece of land, car, house or a property with the intention of reselling it, then Zakat becomes obligatory on its current market value. Therefore, if the piece of land or property has come into your ownership, then Zakat will be obligatory on the current market value of this land or property. 

In other words, you will be paying Zakat either on the land or property (if the deal is complete) or on the instalments given (if the land or property has not as yet come into your ownership).

As far as the instalments that remain to be paid are concerned, it is obvious that there is Zakat on it, as this money is still with you and has not been paid.

And Allah knows best

[Mufti] Muhammad ibn Adam
Darul Iftaa
Leicester , UK


http://www.askimam.org/public/question_detail/33479

I wish to understand how I need paying zakat on some scenarios that I face:

1. I have participated in a joint venture with four relatives on purchasing
a commercial plot with the niyyat of selling it at an appropriate time in
future. The plot has been purchased on instalments with the final instalment
still to be paid (unknown as yet) and the ownership has not yet been
transferred. My share in total is PKR 3,250,000. I started contributing to
my share in January 2013 and have paid 2,900,000 to date. The current value
of the plot has gone up since we started paying instalments in October 2012.
We as a group wish to hold the plot for one to two further years after
ownership transfer before selling so to earn good profit. In the given
scenario how should I calculate my zakat for the passed years and going
forward?

2. I have also purchased a shop on 50% sharing with my sister that we intend
give on rent. This purchase has also been on instalments of which the last
instalment will be paid this month (i.e. July 2015). We started paying
instalments for this in January 2014. The shop has not been handed over and
we haven't received any rent as yet. How am I to calculate zakat on this?

3. My wife has some jewellary that is zakat-able and as a mutual
understanding I pay zakat on that yearly as she doesn't work or hasn't got
earning of her own. My current assumption is that this jewellary doesn't
make me saahib-e-nisaab for the other two assets I have mentioned in first
two points. Please suggest if my understanding is correct?

4. In case I have a zakat-able amount in my bank account, will the
zakat-able amount be totalled adding all three assets (points 1, 2 and 4)
whether a full year has passed on one (or more) of these or not? For
example, if I do not have had the cash for the full year, will I still have
to pay zakat on the cash if I'm eligible to pay zakat on, for instance, land
in the first point?

Answer

1&2. Zakaat will be wajib (compulsory) upon a person who possesses the amount of nisaab, over and above his basic needs and after fulfilling his debts. 

If a person had so much debt that if he had to fulfil the debt, he would have a remainder of wealth which is equal to or more than the nisaab, then zakaat will be wajib on the remainder of the wealth.

If the loan is such that it engulfs the whole wealth, or the remainder of the wealth after fulfilling the debt is less than the nisaab, then zakaat will not be wajib.

However, the ruling will be different in the case of long term debts that exceed the time period of one year. In such situations, the amount owed for one year will be calculated, and only that amount will be considered when applying the rules of zakaat. I.e. if the remainder of the wealth were to exceed the nisaab after fulfilling this amount, then zakaat will be wajib; and if this amount engulfs the remainder of the wealth or the remainder of the wealth after fulfilling this amount is less than the nisaab, then zakaat will not be wajib.

With regards to your specific query, we understand that you and four other relatives jointly purchased a commercial plot with the intention of re-sale in the future. The plot has been purchased on instalments. Your share is PKR 3.250.000 while you have paid up 2.900.000. We also understand that you purchased a shop on instalments with your sister jointly.

Based on the above understanding and the principles as explained above, your share of the instalments will be considered as a liability when calculating your Zakaat. We advise you to estimate the yearly figure you sincerely intend to pay your creditor and calculate such figure as your liability when calculating your Zakaat. For example, your liability is PKR 3.250.000 and you intend to pay PKR 1.000.000 for this year towards your debt, then you will only calculate that amount as your liability and the remainder will not be considered.

You state that you purchased the land with the intention of re-sale, such land will therefore be considered as stock in-trade and you will pay Zakaat on the market value of the land. Moreover, you will only pay Zakaat once you have taken complete ownership transfer of the land in the form of registration and receipt of the title-deeds from the original owner.



http://seekershub.org/ans-blog/2012/03/04/zakat-on-land-and-determining-market-value/

Question: Q1 If land is purchased for leasing apartments, would such a land fall under the definition of merchandise and therefore be zakatable?

Q2: Also, often, potential buyers of the land will not buy the land outright as they may not have the financial capacity. So they will opt to pay in installments. In such an event, the ownership is only transferred once the last installment is paid. In such a case, would any zakat need to be paid at all on the year-to-year profit/appreciation since one doesn’t technically own the land?

Q3: What if the buyer of the land does not have sufficient cash to pay the zakah every year? Can he delay paying the zakat on the profit aspect until the ultimate sale of the land?

Q4: Also, even if the buyer has sufficient cash to pay the zakah every year, is there still an option to delay paying this until the ultimate sale?

Q5: Is there anything in the Shari’ah to indicate how the market value is arrived at? Such as the price that you as the buyer and current owner can sell it at, versus the price that the original owners are advertising at in their brochures?

Answer: Assalamu alaikum wa rahmatullah,

I pray this finds you in the best of health and states.

(1) Zakat is due for land only if at the time of purchase, the buyer has a clear and firm intention of reselling the land itself.

Zakat is not due if the land were purchased for any other purpose, nor if the intention of resale at the time of purchase was not definite but rather a possible option. This holds even if the intention at the time of purchase is for commercial purposes such as leasing, and even if after purchase one firmly decides to resell the land.

Therefore in the scenario you describe, zakat would not be owed.

Also if one does purchase land with the explicit intention of reselling the land, then one simply pays 2.5% of the ‘current market value’ of the land at the time of his or her zakat due date, not on the profit/appreciation alone.

(2) If in this scenario the land were purchased with the explicit intention of reselling the land, then zakat would be due every year upon whatever it is that the buyer owns at the time of his zakat due date, depending on the nature of the contract.

So if at the time of the contract complete ownership of the land is transferred to the buyer, who then pays its price over time in installments, then zakat is due every year on the ‘current market value’ of the land itself. Again, this is assuming the land were purchased with the firm intention of resale alone.

If however the ownership of the land remains with the seller until the full amount is paid, then zakat would be owed every year on the installment money itself given to the seller.

In such a situation though, it might be advisable for the buyer to not make an explicit intention of resale but rather have an intention of ‘keeping his options open’ — even if resale is one of those options — as that makes the situation a bit easier.

(3) In such a situation, one may delay payment of zakat. Again however, zakat is due on the ‘current market value’ of the land at the time of one’s zakat due date, not on the profit/appreciation alone.

(4) Undue delay without a good reason is disliked, so this should not be done.

(5) Neither of these is the basis of determining ‘current market value.’ Rather, this is done by consulting experts in the market who are capable of appreciating the value of land at that time.

[Ibn Abidin, Radd al-Muhtar; Kasani, Bada’i Sana’i; Zayla`i, Tabyin al-Haqa’iq]

And Allah knows best.
wassalam
Faraz A. Khan