Many modern financial instruments did not exist when the classical Zakat rules were formulated. Scholars apply the timeless principles of Zakat to these new contexts. Here are the most commonly asked contemporary questions.
01Zakat on Salary
There is no Zakat on salary at the time of receipt. Salary is compensation for work, not a return on invested wealth. However, if you save part of your salary and that savings reaches the Nisab and remains until the end of your Hawl, it is included in your Zakat calculation. In the Hanafi school, salary received even one day before your Zakat date is counted in the total.
02Zakat on Stocks and Shares
The treatment depends on your intention:
Active Trading
If you buy and sell shares frequently for profit, the entire portfolio is treated as trade goods. Pay Zakat on the full market value on your Zakat date at 2.5%.
Long-term Investment (Dividends)
The share value itself is not directly zakatable. Instead, estimate what percentage of the company's assets are zakatable (cash, inventory, receivables) and apply that percentage to your shareholding. For example, if 30% of a company's assets are zakatable and you own £10,000 in shares, your zakatable amount is £3,000. Saved dividends are zakatable as cash.
03Zakat on Real Estate
The ruling depends entirely on intention at the time of purchase:
Bought to live in: Exempt. Bought to rent: Property value is not zakatable; saved rental income is. Bought to sell for profit: Full market value is zakatable annually. No clear intention: Not zakatable; only income from it counts.
If you originally bought a property to rent but later decide to sell, the property value does not become zakatable retroactively. Only the sale proceeds become zakatable once held on a future Zakat date.
04Pensions and Retirement Accounts
| Pension Type | Zakatable? | Reason |
|---|---|---|
| Income received after retirement | Yes | Treated as cash savings |
| Defined benefit (final salary) pre-retirement | No | No control over investments; cannot access funds |
| Defined contribution / personal pension | Yes | You choose how money is invested; a form of ownership |
For retirement accounts with early withdrawal penalties (like 401(k) or IRA), most scholars advise using the accessible value after penalties and taxes as the zakatable amount.
05Shariah-Compliant Mortgages
Islamic home purchase schemes are structured differently from conventional mortgages, and their Zakat treatment varies:
Murabaha (Cost-Plus Sale)
This is technically a debt. 12 months of installments can be deducted from your zakatable assets.
Ijarah (Lease) and Diminishing Musharakah (Partnership)
These are not classified as debt under Shariah; they are rent and partnership arrangements respectively. No deduction is permitted from zakatable assets. Additionally, if monthly payments are held in a separate bank account to eventually purchase the property, and you can access that account, Zakat may be due on those accumulated funds.
06Trusts and Child Trust Funds
Child Trust Funds (CTFs): No Zakat is payable until the child reaches 18 (or the age of puberty in the Hanafi school).
Bare (Nominee) Trusts: Zakatable if the beneficiary has reached the age of obligation. The trustee pays on behalf of the beneficiary.
Discretionary and other trusts: Not zakatable while assets remain in trust, since neither trustees nor beneficiaries have full possession. Zakat liability begins only when assets are distributed to beneficiaries.
07Cryptocurrency
Cryptocurrency is an emerging area where scholarly consensus is still developing. The predominant contemporary view is that cryptocurrency is zakatable, treated similarly to trade goods or currency. If you hold crypto assets above the Nisab for a full Hawl, Zakat at 2.5% is due on their market value at your Zakat date. If you actively trade crypto, the entire portfolio is treated as trade goods.
Some scholars classify crypto differently depending on whether it functions as a currency, a commodity, or a speculative asset. Consult a scholar familiar with digital assets for guidance specific to your situation.
08Service-Based Businesses
Businesses that sell services (consulting, design, IT, etc.) rather than physical goods typically have no inventory. For these businesses, Zakat is calculated on remaining cash, bank balances, and receivables (money owed to you by clients). If these combined assets reach the Nisab at the end of the Hawl, Zakat is due at 2.5%.
9Money Received Just Before the Hawl Ends
In the Hanafi school, money received from the same type of wealth (e.g. a bonus, salary, or trade profit) is combined with existing wealth and counted on the Zakat date, even if received just one day before. This is because the Hanafi school calculates Zakat collectively on all wealth at the end of the year, not separately per amount.
However, money earned after your Zakat date counts toward the next Hawl. Think of your Hawl date as a financial year-end snapshot.
Continue reading: Zakat vs Sadaqah or return to the Learning Hub.