Short answer
Not on the property itself. In the Hanafi school there is no zakat on the value of a house or flat you rent out, only on the rent you have saved by your zakat date. Land or property bought to resell is different: zakat is due on its full market value every year.
Rental property is a source of income, not trade goods, so its value is not zakatable; saved rent is added to your cash. Property bought with the firm intention of reselling is trade goods (urud al-tijara) and is zakatable each year at its market value.
Other madhhabs
- Maliki
- Property held for resale by an investor waiting for the price to rise is zakated once, for one year, when it is sold. A trader who buys and sells all the time values his stock every year.
Explanation
A rental flat is like a tool that produces income. The building is not zakatable, however valuable. The rent is: whatever rent you still hold on your zakat date joins your cash and is zakated with it. Running costs you have paid, and instalments that are due, reduce that cash first (see debts and zakat).
Property bought to sell is trade goods. If you bought a house, flat or plot with the clear intention of selling it for profit, its full market value on your zakat date is added to your zakatable wealth every year until you sell it. The four schools agree on this, except the Maliki detail for long-term investors noted above.
In the Hanafi school the intention has to be firm at the time you buy:
- Bought to live in, or to rent out: not zakatable, even if you later think about selling. It becomes cash, and zakatable, once you sell it.
- Bought to sell: zakatable each year. If you later decide to live in it or rent it out, it stops being trade goods from that moment.
- Unsure at purchase (maybe live, maybe sell): not zakatable.
- Inherited or gifted property: not trade goods by intention alone, so not zakatable until it is sold.
Use the price the property would realistically sell for on your zakat date. If you own a share of it, zakat is on your share. The zakat on business and rental property calculator can help with the figures.
The evidence
Quran, Surah Al-Baqara 2:267
يَٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوٓا۟ أَنفِقُوا۟ مِن طَيِّبَٰتِ مَا كَسَبْتُمْ وَمِمَّآ أَخْرَجْنَا لَكُم مِّنَ ٱلْأَرْضِ ۖ وَلَا تَيَمَّمُوا۟ ٱلْخَبِيثَ مِنْهُ تُنفِقُونَ وَلَسْتُم بِـَٔاخِذِيهِ إِلَّآ أَن تُغْمِضُوا۟ فِيهِ ۚ وَٱعْلَمُوٓا۟ أَنَّ ٱللَّهَ غَنِىٌّ حَمِيدٌ ﴿٢٦٧﴾
O you who have believed, spend from the good things which you have earned and from that which We have produced for you from the earth. And do not aim toward the defective therefrom, spending [from that] while you would not take it [yourself] except with closed eyes. And know that Allah is Free of need and Praiseworthy.
Many commentators read the good things you have earned as including trade, on which zakat is due.
Sahih al-Bukhari 1463
Sahih... ليس على المسلم في فرسه وغلامه صدقة ...
"A Muslim owes no zakat on his horse or his slave."
Property kept for use rather than sale carries no zakat on its value, which is the basis for exempting the rental building.
Where the ruling is recorded
- al-Hidaya, Kitab al-Zakat, chapter on the zakat of trade goods. Goods are zakatable when bought with the intention of trade.
- Radd al-Muhtar, Kitab al-Zakat, on the intention of trade. Intention alone, without a trade transaction, does not make an item trade goods.
- Mukhtasar Khalil with al-Sharh al-Kabir, Bab al-Zakat, section on trade goods (the investor and the continuous trader). The Maliki rule for the investor who waits for a rise in price.
This answer is pending review by the scholars on our team. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.