Wa `alaykum as-Salamu wa Rahmatullahi wa Barakatuh.
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
1- If you buy this land to build a house for residence, then you don’t have to pay Zakah on it.
2- But if your intention is to invest, then you have to pay Zakah on the assets after deducting any loans or expenses on this asset.
3- Zakah is due after a lunar year from buying the asset.
In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:
Buying a piece of land for residence is a first step to obtain a residence as such this land should not be subject to Zakah if this intention is the main one.
On the other hand, buying land (i.e. any property real or personal) for the purpose of selling it later in order to accumulate wealth for buying a residence or any other purpose, this action puts you in the category of a trader who buys with the expectation of sale at a higher price.
In this case, you are subject to Zakah, even though your intention is to accumulate sufficient amount to buy a residence (which is obviously exempted from Zakah).
Traders are required to pay Zakah on their trading net worth, i.e. market value at the end of the year minus any debts on the trading inventory/assets.
It is you who decides; if you think that the intention of building a house is dominant, there is no Zakah. But if you think that your intention is buying in order to sell at a higher price, then it is subject to Zakah from one lunar year after you buy on the net worth only (assets and liabilities).
Allah Almighty knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.