Understanding Zakat: obligatory charity giving in Islam

The Zakat principles

• Zakat is a strategic and rules-based mechanism rather than a random act of voluntary charity.
• It is obligatory for every Muslim who possesses the requisite net assets (Zakatable assets) to give Zakat.
• Zakat is due on assets acquired to benefit from gain on their capital growth. These assets can include cash, savings, business stock in merchandise, and property owned for investment purposes. Debts owed can be deducted from the asset value to calculate net Zakatable assets.
• Zakat is levied at the rate of 2.5%.

Personal assets such as a home, car or personal belongings are not Zakatable assets as these are not generating income or accumulating wealth.

The following conditions should be met for Zakat to be due.

1. Net Zakatable asset value must reach the minimum threshold (Nisab). The minimum threshold is the amount equivalent to the value of 20 mithqals (87.48 grams) of gold (approximately £9,252.75 (£105.77 per gram) at the time of publishing) or 140 mithqals (595 grams) of silver (approximately £999.60 (£1.68 per gram) at the time of publishing).
2. One lunar year has passed since the net Zakatable asset value reached the minimum threshold. Zakat is paid annually on one’s personal “Zakat year-end”.
3. Zakat is only due on assets over which one has full control, and from which one can benefit. Therefore, if one lacks power to use the asset there is no obligation to pay Zakat. For example, a trust beneficiary who has capital entitlement on attaining 25 years of age.

Giving of Zakat

Under Quranic guidance (9:60), Zakat can be given to the following people:

• people who lack essential needs;
• people who earn but it is not sufficient to meet basic expenses;
• people who cannot clear legitimate debts;
• people who face unjust restraint;
• people who collect and distribute Zakat;
• recent reverts to Islam;
• those striving in the cause of Allah (Glory to Him, the Exalted), such as humanitarian efforts; and
• travellers in need who are far from home and are stranded without resources.

A parent cannot pay Zakat to their children as it is not permissible to make a charitable donation towards dependents. Zakat can be given to qualifying siblings or relatives as they do not come in the category of dependents.

Islam emphasises the distribution of Zakat among relatives and within the community where it was collected, in order to address local poverty first.

Zakat is religiously mandated, unlike voluntary charity which occurs occasionally. It encourages coexistence of financial growth and social responsibility and helps build a balanced and equitable society.

How Zakat interacts with the law and UK tax system

For UK‑based individuals with complex assets, trusts or cross‑border wealth, understanding how Zakat obligations sit alongside UK tax and estate planning can be less straightforward.

Any miscalculation of Zakat can compromise its purpose. Exclusion of Zakatable assets will lead to paying less which will affect a donor’s obligation. Identification of both eligible assets and liabilities is important for the correct calculation of Zakat. It is also important to understand the concept of asset valuation which ensures calculation of the correct threshold.

It is vital to consider Zakat when setting up structures for wealth management, such as trusts, as these structures change the ownership of assets and therefore directly impact Zakat obligations.

Zakat is a debt to Allah (Glory to Him, the Exalted). The majority view of the schools of Fiqh (Islamic Jurisprudence) is that the outstanding Zakat should be paid for a deceased person whether mentioned in the Zakat payer’s Will or not. However, there is a difference of opinion among Muslim jurists, and they opine that the debts to Allah (Glory to Him, the Exalted) must be mentioned in the Zakat payer’s Will for it to be paid after the Zakat giver’s death.  If a person passes away with outstanding Zakat and they bequeathed the payment of Zakat, then their executors must pay it from their estate after funeral costs and debts have been settled.

Zakat payers as taxpayers can receive tax relief on donations made to UK registered charities.

Tax relief can be obtained through the Gift Aid scheme and the payroll giving scheme. Under the Gift Aid scheme, payments by a Zakat payer to an eligible charity are made net of 20% basic rate tax. The charity can then reclaim from HMRC basic‑rate tax on the grossed-up amount of the gift at no extra cost to the Zakat payer. A Zakat payer who pays income tax at the higher or additional rate of income tax can claim back the difference between their marginal rate and the basic rate on the gross amount of the donation.

How we can help

Our Private Client team can help you:

• navigate the interaction between Zakat and UK tax law, including inheritance tax, capital gains tax and income tax considerations;
• structure your assets and charitable giving in a way that respects both Sharia principles and UK legal requirements;
• review trusts, family wealth structures and business interests to assess when Zakat may — or may not — be due;
• advise on charitable vehicles, including UK‑registered charities, donor‑advised funds and family foundations, to ensure compliant and effective giving; and
• assist with making a Gift Aid declaration to HMRC to obtain higher and additional rate tax relief.

Whether you are planning your annual Zakat payment or reviewing your wider estate and succession strategy, our team can provide tailored, confidential advice. For further guidance, please contact our Private Client team.

This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.

Meet the team:

1. 

   • Kate Johnson

   • Partner
   • Private Client

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2. 

   • Shafaq Sadiq

   • Senior Tax and Trust Manager
   • Private Client

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