Donate Zakat Guide
Working out how much Zakat to pay, especially if you are doing it for the first time is not always that straightforward, and for that reason, we have created this short guide. We’ve broken down some of the most common questions and clarified the main misconceptions about Zakat.
Zakat is mandatory for all able Muslims who possess wealth at or above a certain threshold. This threshold is called the Nisab. You only pay Zakat if your total wealth equals or exceeds the Nisab threshold. Zakat should be calculated on 2.5% of all wealth one possesses that is above the nisab value which has been maintained for one lunar year before Zakat is due. If wealth falls below this amount, a person is exempt from paying Zakat. Only those whose total wealth exceeds the nisab values are obliged to give Zakat.
Zakat is the concept of obligatory charity in Islam. It’s how we give back, out of our wealth, to those less fortunate. In a world of gross social and economic inequality, Muslims need to uphold the tradition of Zakat. It is also mentioned in the Quran that, fulfilling Zakat strengthens our faith and is a means of self-purification for our soul and wealth.
Working out your Zakat
To work out your Zakat, you need to add up all the things you own (your assets), take away anything you owe to others (your debts/liabilities), which should give you a total figure of your wealth. The Zakat due would be 2.5% of that wealth. Therefore, if your total assets (after any debts owed) amounted to £10,000, you would pay 2.5% of this as Zakat or £250.
Our Prophet Muhammed (pbuh) has set Nisab at the rate equivalent to 87.5 grams of gold or 612.4 grams of silver. There are differences of opinion with regards to which Nisab value should be used. Some scholars who prefer gold do so because it is closer than silver to being the international alternative currency to paper money. Those who prefer silver hold that it should be used as it is more beneficial for Zakat recipients, by using the silver value, it means that more people are likely to be eligible for zakat, which means more money benefiting the poor and needy, which can only be a good thing.
All set? The first thing you need to do is work out what you own and consider whether it is Zakatable or not
Cash
Zakat is due on any cash you own above the Nisab (as explained before). Add up the current balance in all your bank accounts and any cash you have stored in your home.
Jewellery
Only gold and silver in whatever form are subject to Zakat, though there is a difference of opinion about jewellery that is used or worn regularly and whether it is subject to Zakat.
Zakat is only due on gold and silver in jewellery. All other metals and precious stones including diamonds are not liable for Zakat. If in doubt we would advise that you consider any gold or silver jewellery you own to be Zakatable.
For gold and silver mixed with other materials, as long as the total gold or silver percentage is greater than 50%, then Zakat should be paid on it, proportionally to the percentage… To identify the Zakat due upon your jewellery, you must determine the weight of gold and/or silver in your jewellery, and then determine the value of gold and/or silver.
Example 1: if a gold bracelet is 75% gold and 25% other metals, and the total weight is 100 grams. Then Zakat should be paid on the 75g of gold in it.
Example 2: if a gold necklace is 25% gold, 25% silver and 50% other metals, and the total weight is 200 grams. Then Zakat should be paid on the 50g of gold and 50g of silver in it.
Stocks & Shares
There are broadly 2 main ways in which you can work out how much Zakat to pay on your shares.
1- The market value approach
2- The Zakatable assets or 25% approach.
Which approach to use depends on what your intention to invest in shares is. If you are buying shares with a short-term trade in mine and looking to profit in the short term, then the market value approach is most suitable. In this case you would treat the value of your share portfolio in the same way as you would treat cash, and pay 2.5% of the entire portfolio value as Zakat.
It’s what your shares are worth at the time of paying Zakat, not what you bought them for that matters. For instance, if you invested £50,000 in shares and those shares are now worth £15,000, you would pay 2.5% of £15,000, which is £375.
If, however, you buy shares with a view to holding them and possibly selling them at some point in the future, then the 25% approach is for you.
The 25% approach is based on estimating the Zakatable or liquid assets of the company you have invested in. You can work this out more accurately yourself from the balance sheet of a company or a much simpler approach, endorsed by a number of scholars is to assume 25% of the company’s assets are Zakatable.
So if you have shares worth £10,000, you say 25% (i.e. £2,500) of that is Zakatable, then work out 2.5%, which would give a Zakat figure of £62.50.
Zakat on Retirement Funds
If the individual has access to the fund and can spend it at will, then Zakat is due every year on the fund, like someone who pays Zakat on loans made to others that are expected to be paid back. However, if one has no access to the fund, then Zakat is to be given only when the money is received, that is, at the time of retirement.
Zakat or Cryptocurrencies
Cryptocurrencies have proven themselves to be a recognised system of money that has value and as such are a Zakatable asset. As Cryptocurrencies are viewed as a form of currency Zakat is due on them like any other form of money. Accordingly one may pay 2.5% of his cryptocurrency holdings as Zakat or alternatively, pay 2.5% Zakat in one’s domestic currency equivalent to the value of 2.5% of one’s holdings.
As an example if you owned one Bitcoin your Zakat payment calculation on it would be this:
Find today’s value for Bitcoin (£30,000 estimated) x 2.5% = £750 (Zakat payable)
Property
Zakat is not due on the home you own and live in or which any immediate family and dependants live in such as parents/children.
Property which has been purchased either to sell on and make a profit or to keep as an investment and rent out is Zakatable. For property that is purchased with the intention to redevelop and sell then Zakat is due based on the full value of the property on your Zakat due date for as long as it is held.
Property that has been purchased as an investment with the intention to rent out is only Zakatable for the amount of rental income minus any property-related costs.
Example: Adam buys a property he intends to rent out for £12,000 a year. On Bilal’s Zakat due date, he realises that of the £12,000 rental income, £6,000 went out in mortgage repayments, £2,000 was spent on refurbishment costs and £1,000 on fees. This leaves him with £3,000 remaining on which he needs to pay Zakat of 2.5%.
Vehicles
Vehicles that are owned for personal use are not subject to Zakat, however, vehicles that are purchased with a view to resale are subject to Zakat.
Money Loaned
If you have loaned out money and you expect to receive it back (e.g. you have loaned to friends and family), then you should pay zakat on the full loaned amount.
Next Work Out What You Owe
OK, so you worked out what you own (total assets), next you need to work out what you owe (total liabilities) so you can arrive at your Zakatable wealth, assuming what you are left with is above the nisab amount then we just need to work out 2.5% of this to arrive at your Zakat figure.
Your deductible liabilities are a total of your identifiable and immediate living expenses combined with any imminent loan or debt repayments (excluding interest).
Calculate Your Zakat By Our Zakat Form
Just download our zakat form and fill in the data that the zakat form needs to calculate your zakat.