I have two questions regarding zakaat on property and retirement saving
1- I bought two plots. First, with an intention of constructing rental property in future. Second, with an intention of selling it after 5/6 years and use the proceeds of the sale to buy a smaller plot for constructing family house and use remaining part of the proceeds for construction on the plot. Proceeds of sale wouldn’t be used for anything besides constructing family house. Wanted to know if I need to pay zakaat on both the properties? If yes, would I need to pay zakat every year or year by year once I receive the sale proceeds or would it be just once (for one year) after receiving the sale proceeds
2- We have retirement saving scheme in Australia called “Superannuation” where a percentage of regular income is deducted and contributed to the fund. One can only access to it upon retirement. Wanted to know if I need to pay zakat on it every year or only when I receive the funds on retirement (year by year or just for an year)
Out of the two plots you purchased one was purchased with the intention of constructing rental property. The land and property will not be zakatable. As for the second plot of land, if your intention at the time of purchase was to sell the land then this plot of land itself will be considered trade stock and will be zakatable each year on your zakat anniversary until it is sold. You do not need to pay zakat on the property purchased after selling this land.
As for superannuation we have answered based on our understanding of how superannuation works. As our retirement schemes may differ slightly in the UK you may want to double check our understanding of the super with a local scholar who has looked into the products. If there are any differences in understanding please let us know.
When it comes to retirement funds, the key factor to determine is on who’s behalf the fund is being invested. If it is being invested on behalf of the employee and ownership to the employee can be established, then in that case the employee will have to pay zakat. If however, the investment is made on behalf of the employer and ownership is not established with the employee then the employee will not have to pay zakat.
One way to determine this is to see which party is exposed to the risks. There are generally two types of superannuation (retirement funds). Defined benefit and defined contribution (commonly known as accumulation). An employee can have a super which is a defined benefit, accumulation or a mix of both.
In the defined benefit, the employee is not exposed to market fluctuations. Rather, their balance is calculated using a formula taking into consideration their age, salary, length of employment etc. It is the employer who is exposed to market fluctuations and takes on the risk of the investments. As the employee is not considered the owner of that investment they will not have to pay zakat during the period of investment. However, once they start receiving payments they will have to pay zakat on any payments they have in their ownership on their zakat anniversary. They will not have to pay for any of the previous years.
On the other hand, in the defined contribution super also known as accumulation, the employee takes on the risk. Their balance will be based on how the funds are invested. In this case, when the employer makes payments into the fund, the fund acts as a representative of the employee and take possession on their behalf and then invests it for them. This is how ownership over this investment is established with the employee. Hence, during the period of investment the employee will be considered the owner and will have to pay zakat each year. If they are unable to pay zakat each year they can wait until they receive the investment after retirement and then make payments, however, they will have to calculate and pay for the previous years also.
In the defined contribution scheme, how much zakat has to be paid would depend on the underlying assets of the investment. Only the zakatable assets within the investment will be zakatable. In the UK some scholars have determined proxies to help calculate the zakatable asset ratio of investments. However, we are not aware of any similar proxies being used in Australia.
Answered by:
Ifta Research Fellow
Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel