Zakat is one of the Five Pillars of Islam and is a key part of the Islamic faith. It is the annual prescribed charitable donation qualifying Muslims must make to support those most in need. The term Zakat literally means “that which purifies”. Just as ablutions purify the body and Salat purifies the soul; Zakat purifies income and wealth pleasing Allah (SWT) by helping the poor and needy. 

Who is eligible to pay Zakat?

As defined by the Zakat rules, those eligible to pay must be:

• Adult (an individual who has reached the age of puberty)
• Muslim (Zakat is not paid by non-Muslims)
• Free man or woman
• Sane / of sound mind (psychologically stable)
• In complete ownership of the Nisab

Who is eligible to receive Zakat?

Those eligible to receive assistance from Zakat payments include:

Who is eligible to pay Zakat?

How is zakat calcluted?

Zakat is calculated on your personal and business assets minus qualifying liabilities:

Personal assets include Gold, Silver, Cash at Home and Bank Accounts, Other Savings, Investments & Share Values, Pension Schemes and Money Owed to you. For business owners, assets would include Stock Value and Capital Reserves / Shareholder Funds.

Liabilities include clothing and appliances, money owed to others including card debts, mortgages and personal loans, rent or mortgage payment for the month you pay Zakat and bills that are outstanding in the month you pay Zakat. For business owners, liabilities include any business expenditures such as rates, salaries, bills and rent and short-term business loans or business overdrafts.

To work out your total wealth there is a simple calculation you can use; Personal Assets plus Business Assets less short-term liability equals your wealth. Where your wealth is higher than the calculated Nisab threshold, you are eligible and expected to pay Zakat at 2.5% of your wealth.

The Zakat percentage may vary depending on whether you are a farmer and the irrigation techniques you used to grow your crops, or you have land where you have found precious resources within the lunar year i.e. gold, silver or crude oil.

What is Nisab?

The term Nisab is defined as the threshold amount that a Muslim’s wealth should total to make them eligible to pay Zakat. There are two values used to calculate the Nisab threshold – gold and silver at the value of 612.36 grams of silver and 87.48 grams of gold. The monetary value is calculated on the current price of gold and silver when working out your Zakat contribution.

When to pay Zakat?

Once your wealth has passed the Nisab threshold, you are eligible to pay Zakat. However, it is not paid straight away. Zakat should be paid after your wealth has been held for a full lunar year but only if the value remains above the minimum threshold amount.

Should your wealth increase or decrease, your Zakat amount should adjust accordingly, however, if your held assets fall below the Nisab threshold, you are no longer eligible to pay Zakat. The amount of Zakat due is calculated based on the value of personal wealth at the end of the Islamic year. Many Muslims choose to pay their Zakat during Ramadan as this offers greater blessing and reward, although you can pay your Zakat at any time of year.

Zakat can be paid in instalments, however, it is preferred that your Zakat is paid in a single transaction. Where you are assured your wealth is not likely to change, you can pay your Zakat in advance of the anticipated due date.