What is the Zakat liability on a fixed-term annuity?
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
Zakat is not due on the total amount in a fixed annuity yet to be received.
The Fiqh (jurisprudence of the answer):
An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments and, in return, obtain regular disbursements beginning either immediately or at some point in the future. The goal of an annuity is to provide a steady stream of income during retirement.
A fixed-term annuity is an insurance contract. From a Fiqh perspective, it is an irregular sale contract (bay’ fasid). An irregular contract does not give one ownership until Qabdh (possession) of the counter-exchange. As such, Zakat is not due on the full amount owed to a beneficiary of a joint-life, fixed-term annuity.
This answer can well be different on various types of annuities in the market. Moreover, conventional annuities are not Shariah-compliant products or investments. One should consult a financial advisor to consider alternatives and a local expert in Islamic finance to understand the amount of purification of any such income.
And Allah Ta’ālā Alone Knows Best
Mufti Faraz Adam,
Amanah Finance Consultancy
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