Comprehensive Guide to Using a Zakat Calculator in the UK
Introduction
Zakat is the third pillar in Islam and plays a significant role in the way Muslims live and conduct their financial affairs. The recipients of zakat are a very specific group of people as outlined in the Quran, and there is a specific calculation involved.
Our online zakat calculator assists with calculating the amount of zakat that is owing.
Understanding Zakat And Its Obligations
WHAT IS ZAKAT?
The word zakat means growth and purification in Arabic and refers to the mandatory obligation to give a portion of wealth accrued to charity. Zakat is a fundamental obligation for all Muslims who meet the criteria, and its purpose is to purify wealth and create economic equality and enhance social welfare.
According to Islamic teachings, zakat is a fundamental act of worship. The Quran (2:110) states: 'Establish prayer and give zakat'
WHO NEEDS TO PAY ZAKAT?
Muslims who are required to pay zakat must first understand if they have accrued the minimum amount of wealth required before they become eligible to pay zakat. This is known as nisab and this is worked out based on the equivalent of 85 grams of gold or 595 grams of silver.
Those eligible to pay zakat include the following:
- Adults who have reached puberty and have wealth over the nisab threshold.
- Adults who have full mental capacity.
WHAT ASSETS COUNT TOWARDS ZAKAT?
Zakat is payable on different types of wealth:
- cash
- silver
- gold
- business assets
- investment income
- agricultural produce.
When And How Much Zakat To Pay
Zakat is due on wealth that you have been in possession of for one lunar year. It's also important to note that you can deduct immediate debts from zakatable wealth (see below).
You can pay zakat at any time of the year through instalments or in one lump sum.
Calculating Zakat Step-By-Step Using A Zakat Calculator
Muslims are expected to pay 2.5% of their zakatable wealth every year. Follow these steps to work out how much zakat you need to pay:
- Determine your zakatable wealth total by adding up your assets and deducting immediate debts.
- Ensure that you meet/exceed the nisab threshold
- Apply the 2.5% rule
- Use the online zakat calculator to work out what you need to pay
Always visit a reliable zakat calculator website.
Deductions And Liabilities
There are certain debts and liabilities that be deducted when making your zakat calculation.
The following deductions are allowed:
- short term debts such as credit card balances and small loans that become due in the zakat year.
- for long term debts such as mortgages you can only deduct the payment owing in that zakat year.
- living expenses including bills, rent, good costs, transport.
- unpaid wages to employees.
- business liabilities for the zakat year.
Please note that future debts and expenses are not deductible.
Zakat Payment And Its Impact
Zakat is more than a financial payment, it goes beyond wealth distribution into the realms of spiritual growth, economic justice and fulfilling an important religious obligation.
Paying zakat on time fulfils an essential Islamic obligation and strengthens the relationship with Allah.
Timely payment of zakat leads to increase in blessings and purification of our wealth.
How To Pay Your Zakat
Zakat can be paid in different ways. You can pay zakat direct to individuals who are eligible to receive zakat. Zakat can also be paid to charities and global zakat funds.
Many Muslims choose to pay zakat online by utilising online zakat calculators.
Receiving Zakat
There are eight groups of people to whom zakat can be given:
The needy (this includes people whose earnings fail to cover basic needs such as food, home, water, clothing)
Those in poverty (who have little to no personal belongings and no means of earning a living)
Those employed to administer zakat monies
The wayfarer
People whose hearts have been reconciled to the faith In the cause of Allah (SWT)
People in debt
People in bondage
Recipients of zakat should not be members of your immediate family such as your spouse, parents or children. Other non-immediate relatives can be recipients of your zakat payments.
Many people give to charity throughout the year, for any donation to qualify as fulfilment of the zakat obligation, then there must be an intention to give the money as zakat.
Common Questions And Expert Advice
WHAT IS NISAB?
Nisab is the minimum amount of wealth you need to have before you become eligible to pay zakat. Typically nisab is the equivalent of 595 grams of solver or 85 grams of gold.
DO I PAY ZAKAT ON MY HOME?
Zakat is not payable on your primary home. If you have rental properties then zakat is payable on the income generated.
CAN I GIVE ZAKAT TO MY FAMILY?
You cannot give zakat to immediate family, ie those already dependant on you such as your partner and children. You can pay zakat to extended family members if they are eligible.
ARE ONLINE ZAKAT CALCULATORS ACCURATE?
Yes, as long as you insert the correct information based on your personal circumstances then zakat calculators are an excellent way to calculate your zakat.
IS ZAKAT PAYABLE ON MY RETIREMENT SAVINGS?
If you have full access to these savings and you meet the nisab threshold then zakat is payable.
WHAT IF I FORGET TO PAY ZAKAT?
Use an online zakat calculator to calculate what you owe and pay your zakat as soon as you can.
IS ZAKAT PAYABLE ON STOCKS AND SHARES?
Yes, if the value exceeds the nisab threshold then zakat is payable.
SHOULD NISAB BE CALCULATED ON GOLD OR SILVER VALUES?
In the United Kingdom you can use either the gold or silver value. Many scholars believe that using the value of silver is preferable as it means the amount of zakat increases. If you have assets that mainly consist of gold then it is sensible to use the gold nisab.
WHAT IS THE ZAKAT YEAR?
The zakat year begins on the date on which you first possessed the wealth that took you over the nisab threshold. This will be the start of your zakat year. The zakat payment will therefore become due when the year has elapsed.
HOW DOES ZAKAT APPLY TO YOUR INVESTMENTS ON THE WARDUS PLATFORM?
For all of you that pay zakat, it would be on the total outstanding amount payable to you from your investments via Qardus. The investment is based on a financing arrangement which involves the buying and selling of commodities, and therefore, we believe that these assets are zakatable in nature. Therefore, investors who pay zakat would use the capital plus the profit due to them to calculate the amount of Zakat payable.
Please note that Qardus does not provide tax or other financial advice and that if advice is needed, you should consult an appropriately qualified professional.
Conclusion
Calculating zakat accurately and paying it in a timely manner ensures that it reaches the most vulnerable in society. Paying zakat fulfils one of the core pillars of Islam.
Using an online zakat calculator not only ensures the payment you make is calculated accurately, it saves you time and helps you to make the sometimes complex set of calculations.
Zakat calculators also guide you to eligible recipients and make it easier for you to track your zakat payment history and accountability. The calculations eradicate errors and provide an audit trail. If you have any specific questions about your zakat payment, always remembers to consult with expert scholars.
Use the Qardus zakat calculator here.
Please note that the prices information and values mentioned above are for example purposes only. For an accurate figure of the zakat you are liable to pay then it is always best to use the zakat calculator, and also conduct your own research and obtain qualified advice where required.
Qardus do not offer financial or tax advice and if advice is needed, this should be sought from a qualified professional.
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WHAT IS MURABAHA?Murabaha is an important concept of Islamic finance. Technically, murabaha refers to a contract of sale within which the seller declares the cost and any profit generated. This type of financing arrangement is also known as a costs-plus financing arrangement. This means that the murabaha contract is a contract for the sale of goods at cost price plus an uplift for any agreed profit.
The murabaha contract is essentially a contract whereby the Islamic bank is asked by a customer to make a purchase from a third-party supplier or seller and resell it to the customer.
Payment for the item can be done immediately or on a deferred basis.
Murabaha And Business Transactions
For many small businesses, murabaha financing arrangements have become an essential way to raise funds in a way that is compliant with Sharia rules.
As a form of financing, murabaha is used in many different types of transactions. These can include the purchase of goods for households, real estate, and business equipment.
What murabaha contracts facilitate is a structure whereby an interest free form of financing is available for those who need it.
Murabaha contracts also enable individuals and businesses to have help with making purchases from specialist markets they may not be familiar with.
For small to medium businesses, murabaha financing arrangements mean that capital assets can be bought without the business needing to take out loans to make the relevant purchases.
Murabaha As An Alternative Funding Option
Murabaha contracts have become increasingly popular in the United Kingdom in recent decades, as these types of contracts have become a viable Sharia compliant alternative means of finance.
In the current unpredictable economic market, murabaha arrangements are less risky and more ethical. Customers do not have to worry about fluctuating interest rates.
This form of financing arrangement and funding option is asset-backed and this makes it less tumultuous and risky for people and SME enterprises.
Murabaha Financing
Murabaha is a legal mode of financing structure that many Muslims are keen to use as it offers interest free financing. Many Islamic banks globally offer murabaha contracts to their clients and customers.
Murabaha contracts are used to purchase all manner of goods including raw materials, equipment, machinery, real estate, and exported goods.
This form of Islamic finance is an alternative to the debt based finance systems that have become synonymous in many economies throughout the world.
Murabaha And Sharia Rules
In order to comply with Sharia rules, murabaha contracts must:
- the product or subject of the murabaha must be owned by the bank or financial institution when the financial transaction takes place.
- the asset or goods must be of value (classified as property by Islamic finance rules).
- the goods cannot be commodities that are forbidden
- debt cannot be sold via murabaha contracts.
- there must be no interest payment at all, instead a set fee should be agreed.
- there is a requirement that the entire murabaha transaction should complete in two contract stages - the first being when the customer requests the murabaha transaction and promises to buy it from the bank. The second stage is when the bank purchases the commodity and the customer buys it back on agreed repayment terms.
- both contracts should be valid and enforceable.
- As with any Sharia based contract, the terms and conditions should be clear, concise and unambiguous especially when it comes to the terms relating to money and payments.
- the bank assumes the risk when they buy the goods requested
- the purchaser has the right to return the asset if there are any defects.
The two distinct contract stages (ie two definite and distinct sales) circumvent the Sharia prohibition on charging interest.
Murabaha Contracts - The Stages
There are 3 main stages of a murabaha contract:
- Promise: this stage requires the parties to the contract to negotiate the terms and carry out any due diligence or credit checks that they need to. At this contract stage, the customer will promise the bank that they will purchase the goods the bank will acquire on their behalf.
- Acquisition and Possession: at this stage of the transaction, the bank acquires the goods and keeps possession and takes on the risk of ownership.
- The final stage is when the customer purchases the goods from the bank.
ARE MURABAHA CONTRACTS LOANS?The answer to this question is that murabaha contracts (as long as they are compliant with Islamic finance and Sharia rules) are not loans. There is no interest element at all, instead there is a mark-up based on profit, and this mark-up is agreed upon by the parties.
These types of contracts are contracts for the sale of commodities.
Instead of any form of loan agreement or loan repayment, murabaha contracts are based on the existence of two purchase contracts or agreements. The first agreement is the one where the bank purchases the asset, and the second relates to the purchaser buying the asset from the bank.
The risk of the ownership rests with the bank when they purchase the item. Murabaha contracts are not interest based. Instead, the parties negotiate the terms and the profit margin which should be based on the cost of the original purchase and a profit margin.
Murabaha contracts are increasing in popularity as they are a viable alternative to traditional contracts which are not compliant with Sharia rules. What this means for individuals and businesses is that they are able to finance their endeavours within the framework of Islamic finance.
Introduction
A pension fund is a pool of money that is managed by professional fund managers. The aim of the fund is to save money and invest money in preparation for retirement. A Sharia pension fund is a saving scheme for retirement that aligns with the rules of Islam. Sharia pension funds do not attach themselves to any form of interest or any haram industries.
Sharia pension funds are ethical investments, with funds invested in industries that offer social benefits such as healthcare, agriculture, and education.
With the rise of Islamic finance on a global level and the increased demand for Sharia-compliant financial services, the growth of Sharia pension funds has expanded significantly.
Sharia pension funds will typically have a screening process ensuring they comply with Islamic finance rules. It is important for these types of pension funds to have ongoing compliance monitoring, which means that a qualified Sharia scholar or expert reviews compliance regularly.
In 2024 Sharia pension funds saw significant growth. The Nest Sharia Fund increased its assets by a third to over £180 million.
Historically, Muslims have found it difficult to fund Sharia-compliant funds. The Office for National Statistics found in 2021 that 33% of Muslim employees did not have a workplace pension due to concerns about Sharia-compliance.
These statistics make it clear that there is a huge market for pension funds that comply with Islamic finance principles. Recently, the Financial Times has reported that Sharia pension funds are seeing a huge swell 'amid returns boost'.
WHAT MAKES A PENSION FUND SHARIA-COMPLIANT?
The key features of a Sharia-compliant pension fund are:
- Strictly no interest: the pension fund should have no involvement with interest in any way. This means that any interest-yielding activities, industries or products are not permissible.
- Ethical investing: the pension fund should be mindful of the industries the investments are involved in. Industries and sectors considered haram such as gambling and alcohol should be avoided.
- Compliance: compliance and ongoing monitoring are essential for a Sharia complaint pension fund.
- Sharia screening: financial and ethical screening must take place to ensure that organisations invested in have low levels of overall debt.
- Models of operation: profit-sharing and risk-sharing are the encouraged models of partnership working.
Some examples of Sharia-compliant funds include the following:
- sukuk/Islamic bonds
- investing in property without interest-based loans
- investing in ethical and sustainable industries such as healthcare
Comparing Top Sharia Pension Plans
If you are looking for Sharia-compliant pension funds to ensure you can save for retirement without breaching Islamic rules, then Penfold and Nest pension funds are a good place to start.
Nest Sharia Pension Fund
The Nest Sharia Fund invests in what are known as Islamic bonds (sukuks) that are fully Sharia-compliant. Nest ensures that Islamic scholars screen the investment products and services to ensure they adhere to Islamic rules.
In addition, Nest's Sharia Fund avoids haram industries and interest-bearing investments.
Nest's fee structure consists of a contribution charge (around 1.8%) and an annual management charge in the region of 0.3% based on the value of the fund.
With ethical investments at the core of its activities, the Nest Sharia Fund delivers growth whilst generating income. More recently, Nest has worked on diversifying its investment portfolio to include a 30% allocation to the sukuks it invests it.
Penfold Sharia Pension Fund
The Penfold Sharia Fund invests in a diverse portfolio of companies and funds that all operate in accordance with Sharia principles.
The Penfold fee structure charges an annual fee for savings up to £100k of 0.88%, and this fee drops to 0.53% on amounts over £100k. This transparent and easy to follow fee structure makes this pension fund attractive to investors.
Both these Sharia pension funds use rigorous screening processes that aim to ensure that all investments comply with Islamic finance rules.
If any company they invest in has a proportion of what is considered to be non-compliant income (ie income from interest), then they use purification processes such as donating money to charity.
Investment Risks And Rewards
Sharia pension funds are the same as all investment vehicles on the market. They come with their own unique set of risks and rewards. For Sharia pension funds, the risk management and mitigation strategies should be aligned with Islamic rules.
Sharia pension funds tend to avoid fixed income securities and conventional bonds as these vehicles rely on interest. Instead, Sharia pension funds prefer to invest in Islamic bonds.
Risk
The risk profile for Sharia pension funds can sometimes have a higher risk exposure due to the fact that they stay away from conventional interest-bearing bonds.
Return
In the long term, Sharia-compliant funds deliver comparable and competitive returns to conventional bonds.
Ethical Investments Vs Conventional Funds
It is important to note that Sharia pension funds maintain a balance between competitive financial returns and ethical investment strategies. This makes Sharia funds an attractive option for investors.
If you are looking for investments that focus on societal benefit whilst generating an income (or savings pot) then Sharia pension funds are a great alternative to conventional bonds.
Ethical sectors have seen a massive resurgence in recent years, with strong growth potential. Industries such as renewable energy and technology are prime for investment.
Investors are increasingly considering environmental, social and governance (ESG) factors when examining pension funds.
- Over 89% of investors consider ESG when investing.
- In the UK over 57% of investors now hold ESG investments
- Young Gen Z investors are increasingly interested in ethical investments
- Islamic funds continue to deliver results with nominal growth rates of 84% and 13% of annualised growth rates (Morningstar.CA)
How To Choose And Switch To A Sharia Pension Fund
In order for you to choose a Sharia pension fund you need to ensure you understand what a Sharia pension fund is and how it operates.
If you have a pension fund that you want to switch to a Sharia fund then you need to:
- Review your current pension fund.
- Find out if your pension fund provider is able to offer a Sharia-compliant fund.
- If not, ask if you can switch your pension fund.
- Check your pension fund information to see if there are any penalties or fees for switching to a Sharia-compliant provider.
- Research what Sharia pension fund providers are available and make sure they are fully Sharia compliant.
- Choose your new pension fund provider and open an account.
- Ask your current pension provider to transfer your fund to the new Sharia-compliant provider.
If you want to transfer a workplace pension then speak to your HR team or your employer to find out if they accept transfers of the fund.
Switching to a Sharia pension fund should be straightforward.
Future Of Sharia Pension Funds
Sharia pension funds are becoming a popular investment vehicle and retirement savings plan for Muslims and non-Muslims. The ethical investment market continues to grow as investors across the world seek out sustainable and ethical investments.
Underpinned by social responsibility, the investments within Sharia pension funds appeal to a global audience of investors.
Sharia funds have become known in financial circles as promoting financial inclusion. They cater to investors who have not been able to fund ethical investments or investments that align with Islamic rules.
If you want to prepare for retirement in a Sharia-compliant way then Sharia pension funds provide the perfect vehicle for you. Providers like Penfold and Nest provide Sharia-compliant pension funds with competitive fees.
What Is The Recovery Loan Scheme
The Recovery Loan scheme was launched on the 6th April 2021 by the UK government as a successor to the government’s Interruptions Loan Scheme and bounce back grants from 2020. As with any loan scheme, this scheme requires the payment of interest. This, of course, is contrary to Islamic Sharia law principles that forbid the collection or payment of interest.
For many Muslim-owned and backed businesses, the question has arisen as to whether the Recovery Loan Scheme is Sharia-compliant. Before we address that, we need to look at the Recovery Loan Scheme and its key features.
The Recovery Loan Scheme provisions were put in place by the government to ensure that they were able to provide financial support to UK businesses. The government wanted to offer additional funding to businesses in the UK that needed the funding to survive the economic turmoil brought on by the pandemic.
The Recovery Loan Scheme’s main purpose is to facilitate recovery and growth post-pandemic. The payments from the Recovery Loan Scheme also aim to ensure that businesses survive during the transitional period back to regular business activities.
The scheme is open to any business that is:
- Trading in the UK
- Able to show it has been adversely affected by the pandemic
- Not involved in any insolvency proceedings
- A viable business if not for the pandemic
How The Recovery Loan Scheme Works
The Recovery Loan Scheme wants to facilitate a full return to business activities for those businesses that have been impacted by the pandemic. The successive lockdowns have affected many small and medium businesses that have been unable to earn an income from their trade.
The Scheme is targeted at businesses that are viable enough to afford debt finance. The British Business Bank administers the Scheme. The actual funding is made available via a range of accredited lenders.
As with any process that involves applying for a loan, businesses need to make a formal application via the lender of their choice.
The loan consists of standard commercial lending terms and this includes the payment of interest on the loan amount. The interest rate varies depending on the lender who provides the loan.
Features Of The Recovery Loan Scheme
An approved lender of the Scheme can provide various loan products including:
- Overdraft facilities
- Asset finance monies
- Term loans
- Interest and fees payments
Any business applying for a loan through the Scheme can borrow up to £10 million. There are also minimum facilities that start in the sum of £1,000.
Some other key features are:
- Guarantee: the government itself guarantees up to 80% of the loan to the lender, irrespective of the size of the loan. This guarantee is not provided to the business, but direct to the lender.
- Interest: any business that takes out a Recovery Scheme Loan will have to make interest and fees payments from the date the loan is drawn. Although interest rates are capped at 14.99%, lenders are encouraged to keep the rates low.
- Term: terms vary from 3 months to 6 years.
What Are The Sharia Rules Relating To Loans And Interest
Sharia law prohibits businesses from paying or receiving interest. Interest, known as riba in Sharia law, is forbidden as it is seen as a mechanism that promotes social injustice. One of the central concepts of Islamic Finance is that Muslims cannot benefit from lending money and paying interest on loans.Sharia law deems riba as an exchange with no equity. That means that it encourages an exchange that is considered to be unequal and unjust. Riba is considered to be an exploitative transaction.
Bottom Line
If we have a look at the Recovery Loan Scheme, it relies on interest payments as a key feature of the Scheme’s repayment terms. The interest element of the Scheme deems it to be non-compliant with Sharia law. In this case, the business will be repaying the full loan amount plus interest at a rate decided on by the lender.
The Scheme goes against the Sharia principle of ensuring investments and payments are socially responsible.
Sharia law clearly states that lending with the payment of interest favours lenders who make money at the expense of the borrower. Islam forbids the receipt of income from money alone, and this is precisely what interest payments are.
Islamic Finance is based on ethical economic principles. The Recovery Loan Scheme is therefore not Sharia-compliant as the interest payment element of the Scheme is contrary to Sharia principles.However, businesses that operate within Islamic Finance principles can still recover from the pandemic. Islamic Finance is focused on sustainable economics and there are products available within the Islamic Finance market that can assist businesses with economic recovery.
The Qardus Option For Business Funding
We provide finance to small and medium-sized enterprises with growth potential that the business owners want to unlock. The funding available is from £50k to £200k with terms of between 6 and 36 months.
Our funding process is rooted in Islamic community principles and is certified as Sharia-compliant. As a result, we don't charge interest and we don't work in business sectors considered damaging to society, such as alcohol, tobacco or gambling.
Because of our principles, our funding solution is an attractive option for Muslim business owners, but we also provide funding to business owners outside the Muslim community.
We offer fast, flexible and affordable business growth funding that's firmly grounded in ethical principles.
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