Q. Last year I bought a plot of land and completed its purchase, paying the price in full. I also reserved several plots, paying part of the price and I am continuing to pay by installments. I have been told different things about the zakah I have to pay for these plots. Could you explain what should I pay and when to pay it.
V.O. Khousru
Q. I am told that no zakah is payable on property, such as land or buildings. Is this possible?
Mahmood
A. To answer the second question first, I say: No it is not possible. There is no zakah payable for one’s home where one lives with one’s family. No zakah is payable for the building where you conduct your business, whether it is a shop, a factory or an office space. Nor is zakah liable on farmland. These are necessities. In the case of one’s home, everyone needs accommodation. In the other cases, these are capital assets, which generate income. Zakah applies in the normal way to the income they generate.
A land bought for re-sale within a reasonably short period of time is treated like other commercial goods. It is liable to zakah on the basis of its current value on the owner’s zakah date. This means that if you expect to sell the land you own in full within a few months or a year, then on your zakah date you should calculate its value and pay zakah for the full value at the rate of 2.5%, just like a businessman paying for his stock. As for the plots which you have not paid in full yet, your zakah liability is for what you own. Thus, if you have paid 40% of the price of a plot of land which on your zakah date is worth 10,000, you pay zakah on 4,000. This means that your zakah liability for this piece of land is 100.
On the other hand, a land intended for development is not liable to zakah because it becomes part of your capital assets. Zakah becomes liable on the property built on it according to its use. If you build a house for your own living, with your family, no zakah is payable on the land or on the building. However, if you build a residential complex, selling some units and renting others, then the money you receive for the parts you sell is liable to zakah at the rate of 2.5% on the day you receive the money. For subsequent years, it is part of your money and it is zakahable in the normal way.
Buildings that are let out are also liable to zakah, but only on the rent received. Scholars have different views with regard to the rate applicable. Some treat it as other money, requiring payment of zakah at the normal rate of 2.5% of the gross amount of rent; others say that the rate is 5%; and a third group maintain that the rate is 10% on the net income after deducting all expenses incurred in the maintenance of the rented units or in the administration of the rental. The last two views base these rates on comparison with agricultural land, which is either irrigated with machines, as in the second view, or by rainwater, in the third view. In all cases, zakah is payable on receipt of the rent, whether on weekly, monthly or yearly basis. One does not wait until one’s annual zakah date to pay this zakah on rented property.
A land kept for years before re-sale, intended always for selling at the right price, is not liable to zakah until it is sold. On receipt of the price, zakah is payable on the whole amount received, once only.
