Before applying the 2.5% rate, certain debts and immediate essential costs can usually be subtracted from total wealth: debts due for repayment within the coming year (e.g. a credit card balance or short-term loan instalment); unpaid bills already due; and business liabilities due within the coming year.

Long-term debts, such as the remaining balance on a 25-year mortgage, are treated differently by different scholars. A common approach is to only deduct the instalments due within the coming twelve months, rather than the entire outstanding balance.

Common mistake: deducting an entire mortgage or long-term loan balance in one go is one of the most common Zakat calculation errors, and significantly understates Zakatable wealth.

Bringing it all together — five steps: 1) List every Zakatable asset (cash, gold and silver, business assets, investments, and any Zakatable property or produce). 2) Add these figures together to get Total Zakatable Assets. 3) List short-term debts and bills due within the coming year. 4) Subtract the debts from the Total Zakatable Assets to get Net Zakatable Wealth. 5) Check the Net Zakatable Wealth is at or above Nisab, then multiply by 2.5% to find the Zakat due.

Worked example: Total Zakatable assets (cash, gold, investments): £18,400. Short-term debts due within the year: £1,400. Net Zakatable Wealth: £18,400 minus £1,400 = £17,000. This is above Nisab, so Zakat due is £17,000 x 2.5% = £425.

Knowledge check: Name two types of debt that can typically be deducted before calculating Zakat. Why is it usually incorrect to deduct a full 25-year mortgage balance in one year’s Zakat calculation? List the five steps used to reach a final Net Zakatable Wealth figure.

Model answers: E.g. short-term debts due within the year (credit card balance/loan instalment) and overdue bills. Only the portion due within the coming lunar year is deductible; the rest isn’t yet due for repayment, so deducting it all understates Zakatable wealth. List assets → total them → list short-term debts → subtract → check against Nisab and apply 2.5%.