Question:
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.
The Answer:
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[1].
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,
Shariah Advisor
Amanah Finance Consultancy
DISCLAIMER:
The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any institutions to which he may be affiliated.
Arguments and ideas propounded in this answer are based on the juristic interpretations and reasoning of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another Mufti may reach different conclusions to the one expressed by the author. Whilst every effort has been taken to ensure total accuracy and soundness from a Shari’ah perspective, the author is open to any correction or juristic guidance. On the event of any juristic shortcomings, the author will retract any or all of the conclusions expressed within this answer.
The Shari’ah ruling given herein is based specifically on the scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Consideration is only given and is restricted to the specific links provided, the author does not endorse nor approve of any other content the website may contain.
[1] https://www.investopedia.com/ask/answers/12/what-is-an-annuity.asp
