Zakat on Capital Gains
The question of Zakat on capital gains confuses many Muslim investors who see their portfolios appreciate through market growth. Do you pay Zakat on unrealized capital gains before selling, or only on realized gains after selling? When stocks, crypto, property, or other investments increase in value during the year, does this appreciation immediately become zakatable wealth? How do you calculate Zakat on capital gains that were reinvested rather than withdrawn as cash? What is the difference between short-term gains held less than a year versus long-term gains? Do capital gains tax obligations affect Zakat calculation? What about capital losses reducing your wealth? This comprehensive guide answers every question about Zakat on capital gains with complete clarity for Muslim investors managing appreciated assets.
The critical truth about Zakat on capital gains is this: all capital gains both realized and unrealized are zakatable as part of your total wealth assessed annually on your Zakat date at 2.5%. You do not wait until selling investments to pay Zakat on appreciation. Unrealized gains increasing your portfolio value are zakatable immediately because Zakat is calculated on current market value, not on original purchase prices or cost basis. This guide explains exactly how capital gains work for Zakat purposes, why unrealized gains require Zakat even before selling, how to calculate Zakat when gains are realized through sales, the treatment of reinvested gains, capital losses impact, and the complete Islamic position on investment appreciation backed by authentic Quranic and Hadith evidence.
Critical principle: Unrealized capital gains are immediately zakatable as wealth appreciation
Many Muslim investors mistakenly believe they only owe Zakat on capital gains after selling investments and realizing the profits. This is completely incorrect and causes massive underpayment of Zakat obligations. Islamic Zakat is calculated on current wealth, not on historical cost basis or original purchase prices. When your investments appreciate in value, that appreciation is wealth you possess today even if you have not sold. Your net worth increased, your assets are worth more, and this increased value is zakatable immediately.
If you bought stocks for fifty thousand pounds and they are now worth seventy-five thousand pounds, you own seventy-five thousand pounds of wealth today. The twenty-five thousand pounds in unrealized gains is part of your current wealth just as much as the original fifty thousand pounds principal. On your annual Zakat date, you calculate Zakat on the full seventy-five thousand pounds current market value, not on the fifty thousand pounds you originally invested. This is the fundamental principle for Zakat on capital gains that every Muslim investor must understand and implement correctly.
Capital gains fundamentals
What capital gains are and how they arise
Understanding capital appreciation clarifies when and how Zakat obligations apply.
Capital gains explained for Muslim investors
To understand Zakat on capital gains, you must first understand what capital gains represent. A capital gain is the increase in value of a capital asset like stocks, property, cryptocurrency, or other investments above its purchase price. When you buy an asset for one price and it appreciates to a higher value, the difference is your capital gain. For example, you purchase shares in a technology company for ten pounds per share buying one thousand shares for ten thousand pounds total. The company performs well and the share price rises to fifteen pounds. Your shares are now worth fifteen thousand pounds. Your capital gain is five thousand pounds.
Capital gains can be unrealized or realized. Unrealized gains exist when you still own the appreciated asset without selling. In the example above, while you continue holding the shares worth fifteen thousand pounds with a five thousand pound gain, the gain is unrealized. Realized gains occur when you sell the asset and convert the appreciation to cash. If you sell those shares for fifteen thousand pounds, the five thousand pound gain becomes realized as actual cash in your account. For Zakat on capital gains purposes, both unrealized and realized gains are zakatable, but the treatment differs slightly as explained throughout this guide.
How capital gains accumulate across different assets
Capital gains arise from various investment types. Stock capital gains come from share price appreciation. Property capital gains result from real estate market value increases. Cryptocurrency gains occur when crypto prices rise. Gold gains happen when precious metal prices increase. Mutual fund and ETF gains reflect underlying asset appreciation. Business ownership gains arise from business value growth. All of these gains whether realized or unrealized form part of your total wealth requiring Zakat on capital gains calculation when conditions are met.
Why current market value determines Zakat
Islamic Zakat principles require assessing wealth at current value on the Zakat date. This is fundamental to understanding Zakat on capital gains. When the Prophet Muhammad (peace be upon him) instructed Muslims to calculate Zakat, the methodology was simple: determine what you own today, compare to nisab, and pay 2.5% if conditions are met. Current ownership and current value are the operative principles, not historical transactions or future plans.
Applying this to capital gains, your investments have a current market value today that may differ from what you paid historically. The current value represents your actual wealth, your net worth, what you could access if needed. Historical purchase prices are accounting information for tracking gains and losses, but they do not determine zakatable wealth. Only current market value matters. If you own assets worth one hundred thousand pounds today regardless of paying sixty thousand pounds years ago, you possess one hundred thousand pounds of wealth requiring Zakat calculation. The forty thousand pounds in unrealized gains are as much your wealth as the original sixty thousand pounds principal. Learn more about investment Zakat principles in our Investment Zakat guide.
Unrealized appreciation
Zakat on unrealized capital gains before selling
Why and how unrealized gains are zakatable as part of current wealth.
Unrealized gains are immediately zakatable wealth
The most important concept for Zakat on capital gains is that unrealized gains are zakatable immediately as they occur through market appreciation. You do not wait until selling investments to pay Zakat on accumulated gains. This contradicts what many Muslim investors assume based on capital gains tax rules where tax is only due upon realization through sale. Islamic Zakat and secular tax operate on completely different principles. Tax law defers taxation until realization to simplify collection. Islamic Zakat assesses wealth annually regardless of realization status.
When your stocks appreciate from fifty thousand pounds to seventy thousand pounds during the year, you gained twenty thousand pounds in wealth even though you did not sell. Your balance sheet shows seventy thousand pounds in assets. Your net worth increased by twenty thousand pounds. This increased wealth is zakatable on your annual Zakat date. The fact that you could theoretically lose the gains if markets decline before you sell is irrelevant. Zakat assesses actual wealth on the actual Zakat date, not potential future scenarios. On your Zakat date, you own seventy thousand pounds, so you calculate Zakat on seventy thousand pounds.
Calculating Zakat on unrealized capital gains
The calculation method for Zakat on capital gains with unrealized appreciation is straightforward. On your annual Zakat date, check the current market value of all investment holdings. Do not look at purchase prices or cost basis. Only current value matters. For stocks, multiply current share price by shares owned. For cryptocurrency, check current market price times quantity held. For property, use current market valuation. For funds and ETFs, use current net asset value or market price. Sum all current values to get total investment wealth.
This total current value automatically includes all unrealized gains accumulated since you purchased the assets. You do not need to separately calculate the gain portion versus principal portion. The market value is the market value. For example, Stock A purchased for ten thousand pounds now worth fifteen thousand pounds contributes fifteen thousand pounds to your wealth total. Stock B purchased for twenty thousand pounds now worth eighteen thousand pounds contributes eighteen thousand pounds. Your total from these two positions is thirty-three thousand pounds, which is then combined with all other wealth for complete Zakat on capital gains calculation.
Why unrealized gains cannot be excluded from Zakat
Some Muslims argue that unrealized gains should not be zakatable because the gains might disappear through market declines before they can be realized. This argument fails on multiple grounds. First, Zakat assesses current wealth, not future possibilities. Your wealth today is what it is, regardless of tomorrow's uncertainty. Second, the same logic would exempt all investments from Zakat since markets fluctuate. Third, Islamic scholars across all schools agree Zakat is on current market value, not cost basis. Fourth, excluding unrealized gains would allow indefinite deferral of Zakat simply by never selling, which violates the spirit and letter of Islamic wealth purification requirements. Unrealized gains are definitively zakatable for Zakat on capital gains.
Handling market volatility and unrealized gains
Investment markets fluctuate daily causing unrealized gains to rise and fall constantly. This volatility does not change Zakat on capital gains methodology. You calculate Zakat once annually on your specific Zakat date using values on that date. If your investments were worth eighty thousand pounds on 1st January, ninety thousand pounds on 1st June, and seventy-five thousand pounds on your Zakat date of 1st Ramadan, you calculate Zakat on the seventy-five thousand pounds value on your Zakat date. The fluctuations during the year are completely irrelevant.
This annual snapshot approach handles volatility elegantly. You do not track daily or monthly value changes. You do not calculate Zakat multiple times as values fluctuate. You simply check current values on your one annual Zakat date and calculate 2.5% on the total. Whether markets were higher or lower at other times during the year makes no difference. This is the same principle Islamic scholars have applied for centuries to trade goods whose values fluctuate, now applied to modern investment assets with unrealized capital gains.
Include all gains
Calculate Zakat on current value including unrealized gains
Use market value on your Zakat date, not purchase prices or cost basis.
Calculate Your Zakat →Realized profits
Zakat on realized capital gains after selling
How to handle Zakat when you sell investments and convert gains to cash.
Realized gains become cash in your possession
When you sell investments and realize capital gains, the gains convert from paper appreciation to actual cash deposited in your account. For Zakat on capital gains purposes, this realized cash is zakatable in the same manner as any other cash you possess. The timing consideration is that realized gains enter your cash holdings which are assessed on your annual Zakat date. If you sell stocks in March realizing thirty thousand pounds in gains, this thirty thousand pounds sits as cash in your brokerage or bank account. On your Zakat date, this cash is included in your total wealth calculation.
The key insight is that you already paid Zakat on these gains when they were unrealized. If you held stocks that appreciated fifty thousand pounds in unrealized gains, you paid Zakat on that fifty thousand pounds appreciation as part of the stock market value on previous Zakat dates. When you eventually sell and realize the fifty thousand pounds as cash, you are not paying Zakat on gains for the first time. You are simply continuing to pay annual Zakat on wealth that changed form from appreciated stocks to cash. The annual assessment method prevents double taxation while ensuring all wealth is zakatable.
No separate Zakat payment upon realization
Many investors wonder if they owe additional Zakat when they sell investments and realize gains beyond the annual Zakat they already pay. The answer is no. You do not pay Zakat twice on the same wealth. Zakat on capital gains is calculated through the annual assessment method. Realization through selling does not trigger a separate Zakat event. The realized cash simply becomes part of your wealth assessed on your next annual Zakat date. If you sell investments in June realizing gains, those gains are zakatable cash on your Zakat date whenever it occurs, but you do not pay special realization Zakat at the moment of sale.
Reinvested capital gains and Zakat
Common investment practice involves reinvesting capital gains rather than withdrawing them as spending money. You might sell Stock A realizing gains, then immediately use the proceeds to purchase Stock B. Or you might sell property and use the gains as down payment for a larger property. For Zakat on capital gains, reinvestment does not change zakatable wealth. The value simply transferred from one asset form to another. If you reinvested thirty thousand pounds in realized gains into new stocks, those stocks are worth thirty thousand pounds on your Zakat date and are zakatable at that value.
The reinvestment cycle continues indefinitely with Zakat calculated annually on current values. Original principal, accumulated gains, and reinvested gains all blend into current market values assessed each year. You never need to track which portions of your wealth represent original capital versus gains versus reinvested gains. The beauty of the Islamic Zakat system is this simplicity: check current value, compare to nisab, pay 2.5% annually. Whether gains were realized and reinvested or remain unrealized makes no difference to the calculation method.
Partial realization and remaining unrealized gains
Investors often realize gains gradually by selling portions of holdings rather than entire positions. You might sell twenty percent of your stock holdings while keeping eighty percent. For Zakat on capital gains, calculate the realized portion as cash and the remaining portion at current market value. If you originally invested one hundred thousand pounds now worth one hundred and fifty thousand pounds with fifty thousand pounds unrealized gains, and you sell forty percent of the position realizing sixty thousand pounds cash with twenty thousand pounds in gains, your wealth assessment includes the sixty thousand pounds cash plus the ninety thousand pounds remaining stock value.
The annual Zakat date approach handles partial realization automatically. Whatever you own on your Zakat date is what you calculate Zakat on. If you realize and withdraw some gains before your Zakat date, the cash is counted. If you realize and reinvest some gains before your Zakat date, the new investments are counted at current value. If you leave some gains unrealized, the appreciated holdings are counted at market value. The total captures everything correctly without requiring complex tracking of realization events throughout the year.
Tax considerations
Capital gains tax and Zakat are separate obligations
Understanding the difference between secular tax law and Islamic Zakat requirements.
How capital gains tax differs from Zakat
Capital gains tax and Zakat on capital gains are completely separate obligations that happen to share the word capital gains but operate on entirely different principles. Capital gains tax is a secular government levy imposed on realized gains when you sell investments. In the UK, capital gains tax is charged on gains exceeding the annual exempt amount of twelve thousand three hundred pounds at rates of ten percent for basic rate taxpayers or twenty percent for higher rate taxpayers. In the US, rates vary from zero to twenty percent depending on income and holding period. Capital gains tax is only triggered upon sale and realization.
Islamic Zakat is a religious obligation on accumulated wealth calculated annually regardless of realization. Zakat rate is always 2.5% on total wealth exceeding nisab that has been held for one lunar year. Zakat applies to both unrealized and realized gains as part of total wealth. Zakat is owed to Allah and paid to eligible recipients as purification and support for the needy. The calculation base, rate, timing, and purpose are all different from capital gains tax. They are unrelated obligations despite both relating to investment gains.
You cannot deduct capital gains tax from Zakat
A common question about Zakat on capital gains is whether you can deduct capital gains tax obligations from your Zakat calculation. The answer is generally no according to most Islamic scholars. Capital gains tax is a debt owed to government that does not reduce your zakatable wealth. When you sell investments and owe capital gains tax, you have the full sale proceeds as wealth until you pay the tax. On your Zakat date, if the cash is still in your account, it is zakatable regardless of pending tax obligations.
Some scholars allow deducting immediately payable debts from zakatable wealth, which might include capital gains tax due soon. However, the majority position is that taxes are government obligations distinct from Zakat calculations. You fulfill both obligations independently. If you realize one hundred thousand pounds in capital gains and owe twenty thousand pounds capital gains tax, most scholars say you calculate Zakat on the full one hundred thousand pounds on your Zakat date, pay the twenty thousand pounds tax when due, and pay Zakat on remaining wealth on subsequent Zakat dates. The two obligations do not offset each other.
Tax-advantaged accounts and Zakat on capital gains
Many countries offer tax-advantaged accounts where capital gains are tax-free or tax-deferred. UK ISAs exempt capital gains from tax entirely. US Roth IRAs provide tax-free growth. Despite these tax advantages, capital gains in these accounts remain fully zakatable. The tax exemption from government does not create exemption from Zakat owed to Allah. Calculate Zakat on capital gains in ISAs, Roth accounts, and other tax-advantaged vehicles using the same current market value method applied to taxable accounts. Tax status and Zakat status are independent considerations for Zakat on capital gains.
Short-term versus long-term gains for Zakat
Tax law often distinguishes between short-term capital gains from assets held less than one year and long-term capital gains from assets held over one year, applying different tax rates. Islamic Zakat makes absolutely no distinction between short-term and long-term gains for Zakat on capital gains purposes. All capital gains whether from positions held one day or ten years are treated identically. Zakat is calculated on current total wealth at 2.5% annually. The holding period of individual assets is irrelevant to the calculation.
This simplification is another example of Islamic Zakat's elegant design. Rather than complex rules tracking holding periods, cost bases, and realization dates like tax systems require, Zakat uses a universal principle: total current wealth assessed annually. An active trader realizing frequent short-term gains and a buy-and-hold investor with long-term unrealized gains both calculate Zakat identically using total portfolio value on their Zakat date. The focus on current wealth rather than transaction history makes Zakat on capital gains straightforward regardless of investment strategy.
Simple annual method
Calculate Zakat once per year on total wealth including all gains
No complex tracking. Just current value on your Zakat date at 2.5%.
Use Zakat Calculator →Losses and declines
How capital losses affect Zakat calculation
Understanding the impact of investment losses on zakatable wealth.
Capital losses reduce zakatable wealth
Just as capital gains increase your zakatable wealth, capital losses decrease it for Zakat on capital gains purposes. Zakat is calculated on net wealth, meaning total assets minus total liabilities. When investments decline in value creating capital losses, your net wealth decreases accordingly. If you invested one hundred thousand pounds and your portfolio declined to eighty thousand pounds due to market losses, your current wealth is eighty thousand pounds. You calculate Zakat on the eighty thousand pounds actual current value, not on the one hundred thousand pounds you originally invested.
This treatment of capital losses is the natural counterpart to taxing capital gains. The principle is wealth assessment, not transaction tracking. On your Zakat date, you own what you own at its current value. If that current value is less than historical purchase prices due to market declines, you have less wealth and therefore less Zakat obligation. There is no separate mechanism for claiming loss deductions or carrying forward losses like tax systems have. The current value method automatically accounts for all gains and losses in the market value you assess annually.
Unrealized versus realized capital losses
Like capital gains, capital losses can be unrealized or realized. Unrealized losses exist when you still hold investments that declined below purchase price. If you bought stocks for fifty thousand pounds now worth thirty-five thousand pounds, you have fifteen thousand pounds in unrealized losses. For Zakat on capital gains and losses, these unrealized losses reduce your zakatable wealth immediately through the lower current market value. You do not wait until selling to benefit from the loss reducing your Zakat. The thirty-five thousand pounds current value is what you calculate Zakat on.
Realized losses occur when you sell investments at a loss and convert the reduced value to cash. If you sell those stocks for thirty-five thousand pounds realizing a fifteen thousand pound loss, you now have thirty-five thousand pounds cash instead of fifty thousand pounds. On your Zakat date, the cash is zakatable at its actual amount. The realized loss has permanently reduced your wealth. You do not track the loss separately or claim any special Zakat treatment. The wealth reduction is captured automatically through current value assessment.
Mixed portfolio with gains and losses
Most investment portfolios contain some positions with gains and others with losses. For Zakat on capital gains and losses, you simply use total current portfolio value which nets all gains and losses automatically. If Stock A has twenty thousand pounds unrealized gains, Stock B has ten thousand pounds unrealized losses, and Stock C broke even, your total portfolio value reflects the net twenty thousand pounds gain plus original capital. You do not separately track which positions gained or lost. Market value captures everything. This makes Zakat calculation simple despite complex underlying performance.
When losses bring wealth below nisab
Significant capital losses can reduce your total wealth below nisab threshold, potentially eliminating Zakat obligation. If your wealth was one hundred thousand pounds last year requiring Zakat, but market losses reduced it to thirty thousand pounds this year and nisab is approximately four hundred pounds, you still exceed nisab and owe Zakat on thirty thousand pounds. However, if losses were severe enough to bring total wealth below nisab, no Zakat would be due this year. When wealth recovers above nisab, a new hawl begins requiring one lunar year above nisab before Zakat becomes obligatory again.
This demonstrates how Zakat on capital gains and losses adapts to your actual financial situation. Zakat is not a rigid fixed amount but a proportional obligation based on current wealth capacity. In years of strong gains, you pay more Zakat reflecting greater wealth. In years of losses, you pay less or potentially nothing if wealth dropped below nisab. The system ensures Zakat remains fair and responsive to real economic conditions while maintaining the principle of wealth purification when you have the capacity to give.
Real situations
Detailed examples of Zakat on capital gains calculation
Step by step scenarios showing how to calculate Zakat with realized and unrealized gains.
Investor with significant unrealized gains paying Zakat correctly
Background: Aisha is a British Muslim who invested in a diversified stock portfolio five years ago. Her portfolio has appreciated substantially with large unrealized gains. Her annual Zakat date is 1st Ramadan and she wants to ensure correct Zakat on capital gains calculation.
Investment history and current values: Original investment five years ago: £80,000 spread across various halal stocks. Through market appreciation and dividend reinvestment, portfolio grew substantially. Current portfolio value on Zakat date: £142,000. Total unrealized capital gains: £62,000. Aisha never sold any positions, so all gains remain unrealized.
Common misconception she avoided: Aisha initially thought she only owed Zakat on the £80,000 principal since the £62,000 gains were unrealized. After learning correct Islamic ruling, she understands Zakat is on current value regardless of realization status.
Correct Zakat calculation: Portfolio current value: £142,000. Other zakatable wealth includes £18,300 in savings accounts, £4,200 physical gold, £2,800 cryptocurrency. Total wealth: £167,300. Nisab is approximately £440 based on silver. Wealth far exceeds nisab and remained above it continuously for the full lunar year.
Zakat due: £167,300 times 2.5% equals £4,182.50. Aisha pays £4,183 in Zakat. This Zakat obligation correctly includes the £62,000 in unrealized gains as part of her zakatable wealth.
Key insight about Zakat on capital gains: If Aisha had incorrectly excluded unrealized gains and only calculated Zakat on the £80,000 original investment plus other wealth (£105,300 total), she would have only paid £2,632.50 Zakat instead of the correct £4,183. By excluding unrealized gains, she would have underpaid £1,550.50 annually, a serious error multiplied over years. Unrealized gains must be included in Zakat on capital gains.
Active trader with frequent realized gains throughout the year
Background: Omar is an American Muslim who actively trades stocks, making dozens of sales throughout the year. He realizes both gains and losses frequently. His Zakat date is 15th Shaban and he wants to understand Zakat on capital gains with active trading.
Trading activity during the year: January through December, Omar made 78 trades. Total realized gains from winning trades: $125,000. Total realized losses from losing trades: $38,000. Net realized gains for the year: $87,000. He also holds some positions with unrealized gains: $22,000. Current cash from trading: $94,000 (includes realized gains minus losses plus some original capital).
Incorrect approach Omar initially considered: Omar wondered if he needed to pay Zakat separately on each realized gain when trades settled, or if he needed complex tracking of every transaction. He worried active trading complicated Zakat on capital gains beyond calculation.
Correct annual assessment method: On his Zakat date 15th Shaban, Omar checks his current wealth. Current stock holdings at market value: $68,000 (includes $22,000 unrealized gains). Cash in brokerage account: $94,000 (includes all realized gains minus losses from the year). Other savings: $31,000. Total wealth: $193,000.
Zakat calculation: Nisab is approximately $550 based on silver. Omar's wealth far exceeds nisab. Zakat due: $193,000 times 2.5% equals $4,825. Omar pays $4,825 Zakat.
Simplification through annual method: Despite 78 trades with complex gain and loss patterns, Omar's Zakat on capital gains calculation was simple. He did not track individual trade Zakat. He did not pay Zakat on each realized gain. He simply assessed total current wealth once annually, which automatically captures all trading activity through current cash and stock values. The annual method handles active trading elegantly.
Key insight about Zakat on capital gains: Active trading does not require complex Zakat tracking. The current wealth assessment on your annual Zakat date automatically includes all realized gains sitting as cash and all unrealized gains reflected in current stock values. Trade frequency is irrelevant to Zakat calculation methodology.
Investor selling property with large realized gain
Background: Bilal is a British Muslim who owned an investment property in London for eight years. He sold the property this year realizing a substantial capital gain. His Zakat date is 1st Muharram and he wants to calculate Zakat on capital gains from the property sale correctly.
Property transaction details: Original property purchase price eight years ago: £320,000. Property sale price this year in June: £485,000. Realized capital gain: £165,000. After estate agent fees and legal costs totaling £18,000, net proceeds: £467,000. This cash is now in Bilal's bank account awaiting reinvestment decision.
Zakat on the gain: Bilal wonders whether he owes special Zakat on the £165,000 realized gain at the time of property sale in June, or how to handle this large gain for Zakat on capital gains purposes.
Correct understanding: The property was investment property, not personal residence. For the eight years Bilal owned it, the property was zakatable at its current market value each year on his Zakat date. As property appreciated from £320,000 to £485,000 over eight years, Bilal paid annual Zakat on increasing property values including unrealized gains each year. When he sold in June realizing the gain, no special Zakat was triggered at that moment.
Zakat date calculation after sale: On 1st Muharram (his Zakat date occurring in November, five months after June sale), Bilal checks his wealth. Cash from property sale: £467,000 (he has not yet reinvested). Stock portfolio: £58,000. Savings: £12,000. Gold: £3,500. Total wealth: £540,500.
Zakat due: Nisab is approximately £435 based on silver. Bilal's wealth far exceeds nisab. Zakat: £540,500 times 2.5% equals £13,512.50. Bilal pays £13,513.
Key insight about Zakat on capital gains: The property appreciation was zakatable annually through increasing market values over eight years. The realization through sale in June did not create a new Zakat event. The cash from sale is zakatable on the next Zakat date as part of total wealth. Large realized gains from property sales are handled through the normal annual Zakat cycle, not through separate calculations at transaction time.
Investor with cryptocurrency gains in both realized and unrealized form
Background: Fatima is a Muslim investor who holds Bitcoin and Ethereum purchased over the past three years. She sold some holdings this year realizing gains while keeping other holdings with unrealized gains. Her Zakat date is 1st Ramadan and she wants correct Zakat on capital gains calculation for crypto.
Cryptocurrency portfolio details: Three years ago, Fatima invested £25,000 total in crypto. She bought Bitcoin at various prices averaging £18,000 per coin and Ethereum averaging £1,200 per coin. Markets appreciated significantly over three years.
Sales during the year: In March, Fatima sold 40% of her Bitcoin holdings when BTC reached £45,000 per coin. She realized £38,000 from this sale with approximately £24,000 in capital gains. She used £30,000 to pay off personal debts and kept £8,000 cash. She did not sell any Ethereum.
Holdings on Zakat date: Remaining Bitcoin (60% of original position): Current value £57,000. This includes substantial unrealized gains from the £18,000 average purchase price. Ethereum (100% of original position): Current value £41,000. This also includes substantial unrealized gains from £1,200 average purchase price. Cash from partial Bitcoin sale after paying debts: £8,000. Total crypto and related wealth: £106,000.
Other wealth: Savings account: £22,000. Stock portfolio: £34,000. Total wealth: £162,000.
Zakat calculation: Nisab is approximately £440. Fatima's wealth far exceeds nisab and remained above it all year. Zakat due: £162,000 times 2.5% equals £4,050. Fatima pays £4,050.
Understanding the calculation components: The £57,000 Bitcoin value includes unrealized gains from appreciation beyond purchase price. Zakatable. The £41,000 Ethereum value includes unrealized gains. Zakatable. The £8,000 cash includes portion of the £24,000 realized gains from March sale (the rest was used for debt payment which was a legitimate use reducing zakatable wealth). All three components plus other wealth total to £162,000 requiring 2.5% Zakat.
Key insight about Zakat on capital gains: Cryptocurrency capital gains whether realized or unrealized are handled identically to stock capital gains. Use current market values for unrealized holdings. Include realized gain cash in wealth total. The annual assessment method works perfectly for crypto despite volatility and regardless of whether gains were realized through sales or remain unrealized in holdings.
Complete your obligation
Calculate accurate Zakat on all wealth including capital gains
Include unrealized gains, realized gains, and all other wealth in one annual calculation.
Calculate Zakat Now →Islamic evidence
Quran and Sahih Hadith on wealth assessment and Zakat
Authentic textual sources establishing that Zakat is calculated on current wealth including all gains.
Quran
Give Zakat from what We provided
Quran 2:110
Allah commands giving Zakat from provisions granted. Investment appreciation represents wealth Allah provided through market growth. When capital gains increase your wealth above nisab for one year, Zakat becomes obligatory on the total current value including gains, not just on original principal invested.
Quran
Those who hoard wealth without purifying it
Quran 9:34
Allah warns against accumulating wealth without purification. Unrealized capital gains represent accumulated wealth even before selling. Arguing that unrealized gains should not be zakatable because they are not yet cash constitutes withholding Zakat on actual possessed wealth, violating this Quranic principle.
Quran
In their wealth is a determined right
Quran 51:19
Allah establishes that wealth contains specific rights for the needy. Capital gains whether realized or unrealized increase your total wealth, thereby increasing the determined right owed. Excluding unrealized gains from Zakat calculation denies this right on a substantial portion of wealth.
Quran
Spend from the good things you earned
Quran 2:267
Allah instructs spending from earnings and what We produced from earth. Investment gains are earnings from your capital. When capital appreciates creating gains, these earnings increase zakatable wealth immediately. The directive to spend from earnings includes paying Zakat on capital gains as they accumulate.
Hadith
Zakat is on trade goods at current value
Sunan Abu Dawud 1562
The Prophet (peace be upon him) established that Zakat on trade goods is calculated on their value on the Zakat date, not on original cost. This principle directly applies to modern investments. Stocks, crypto, and other assets are valued at current market prices including capital gains, not at purchase prices excluding gains.
Hadith
Assess your wealth and pay Zakat
Sahih al-Bukhari 1454
The Prophet (peace be upon him) taught wealth assessment for Zakat purposes. Assessment means determining current value, not historical cost. When you assess investment holdings, you determine what they are worth today. Capital gains are inherent in current value. The instruction to assess wealth mandates including appreciation in Zakat calculation.
Hadith
Wealth must complete one year
Sunan Abu Dawud 1573
No Zakat until wealth completes one year in possession. Capital gains accruing on investments already held for a year are immediately zakatable because they accrue to wealth that met the hawl requirement. Unrealized gains on stocks held over one year do not need a separate one year waiting period for those specific gains.
Hadith
Purify your wealth through Zakat
Sahih Muslim 987b
Zakat purifies accumulated wealth. Capital gains substantially increase wealth accumulation for investors. Excluding unrealized gains from Zakat means a large portion of wealth accumulation escapes purification, defeating the purpose of Zakat. All wealth including gains must be purified through proper Zakat calculation.
Scholarly consensus on current value assessment
Islamic scholars across all four major schools of jurisprudence unanimously agree that Zakat is calculated on current market value of assets, not on historical purchase prices or cost basis. This principle, established over 1400 years ago for agricultural produce and trade goods, applies equally to modern investment assets. Contemporary Islamic finance scholars including those at the Islamic Fiqh Academy, major Shariah boards, and the Accounting and Auditing Organization for Islamic Financial Institutions have explicitly confirmed that stocks, real estate, cryptocurrency, and other investments are zakatable at current market value including all unrealized capital gains. The argument that only realized gains should be zakatable contradicts fundamental Zakat principles and finds no support in classical or contemporary Islamic scholarship. For Zakat on capital gains, the scholarly consensus is clear and absolute: current value including all appreciation is the correct calculation basis, with Zakat due annually at 2.5% when wealth exceeds nisab for one lunar year.
FAQ
Frequently asked questions about Zakat on capital gains
Direct answers to the most common questions Muslim investors have about capital gains and Zakat.
Do I pay Zakat on unrealized capital gains?▾
Yes, you pay Zakat on unrealized capital gains. Zakat is calculated on the current market value of your assets on your annual Zakat date, regardless of whether you have sold them. If you bought stocks for ten thousand pounds and they are now worth fifteen thousand pounds, you pay Zakat on the full fifteen thousand pounds current value including the five thousand pounds unrealized gain. You do not wait until selling to pay Zakat on appreciation.
When do capital gains become subject to Zakat?▾
Capital gains become zakatable immediately as they occur through market appreciation. If your investments increase in value during the year, this appreciation is part of your wealth on your Zakat date. You do not need a separate triggering event. On your annual Zakat date, calculate Zakat on total current market value which includes all unrealized gains accumulated since you purchased the assets. The gains are zakatable even if you never sell.
How do I calculate Zakat on realized capital gains from selling investments?▾
When you sell investments and realize capital gains, the sale proceeds become cash in your possession. On your annual Zakat date, this cash is included in your total wealth calculation. If you sold stocks for a twenty thousand pound gain that is now sitting in your bank account, that twenty thousand pounds is zakatable cash. You calculate Zakat once annually on all wealth including realized gains, not separately when you make sales.
Is there a difference between short-term and long-term capital gains for Zakat?▾
No, Islamic Zakat makes no distinction between short-term and long-term capital gains. Whether you held an investment for one month or ten years, whether tax law treats the gain differently, Zakat calculation is identical. All capital gains whether realized or unrealized, short-term or long-term, are simply components of your total wealth assessed annually at 2.5% if you meet nisab and hawl requirements.
Do I pay both capital gains tax and Zakat on investment profits?▾
Yes, capital gains tax and Zakat are separate obligations. Capital gains tax is a secular government requirement on realized gains when you sell investments. Zakat is an Islamic religious obligation on total wealth including unrealized gains calculated annually. You cannot deduct capital gains tax from your Zakat calculation. Both obligations must be fulfilled independently according to their respective rules.
What if I reinvest my capital gains instead of taking cash?▾
Reinvesting capital gains does not change Zakat obligations. If you sell Stock A realizing gains and immediately buy Stock B, the value transferred to Stock B is zakatable. On your Zakat date, you calculate Zakat on the current value of Stock B which includes the reinvested gains. Whether gains are taken as cash or reinvested, they remain part of your zakatable wealth requiring annual 2.5% Zakat.
How do I handle Zakat on capital gains from property sales?▾
When you sell investment property and realize capital gains, the cash proceeds including the gain portion become zakatable wealth. If you bought a property for two hundred thousand pounds and sold for three hundred thousand pounds, the one hundred thousand pound gain is now cash requiring Zakat. On your annual Zakat date, include this cash in total wealth. Property capital gains follow the same Zakat rules as stock or crypto gains.
Do capital losses reduce my Zakat obligation?▾
Yes, capital losses reduce your total wealth and therefore your Zakat calculation. Zakat is on net wealth, not gross holdings. If you had one hundred thousand pounds in investments but realized twenty thousand pounds in capital losses reducing your wealth to eighty thousand pounds, you calculate Zakat on the eighty thousand pounds current value. Unrealized losses also reduce Zakat by decreasing current market values.
What about capital gains in tax-advantaged accounts like ISAs?▾
Capital gains in ISAs and other tax-advantaged accounts are fully zakatable despite tax exemption. The UK tax-free status of ISA gains does not exempt them from Zakat. Calculate Zakat on the full current value of ISA holdings including all unrealized gains accumulated over time. Tax law and Islamic Zakat law operate independently, so tax advantages do not reduce Zakat obligations.
How often do I pay Zakat on capital gains as they accumulate?▾
You pay Zakat once annually on your designated Zakat date, not as capital gains accumulate throughout the year. Your investments may appreciate every day, but you only calculate Zakat once per year on the total value including all gains on your specific Zakat date. If investments appreciated ten percent in March and another five percent in August, you do not pay Zakat twice. You pay once annually on the total accumulated value.
Implementation
Practical tips for managing Zakat on capital gains
Make capital gains Zakat calculation accurate and ensure correct ongoing compliance.
1. Always use current market value
Never calculate Zakat on capital gains using purchase prices or cost basis. Always use current market value on your Zakat date. Check stock prices, crypto prices, property valuations, and all other asset values as of your specific Zakat date. Current value automatically includes all gains and losses without requiring separate tracking. This is the correct Islamic method.
2. Ignore realization events during the year
Do not pay special Zakat when you sell investments and realize gains. Do not worry about tracking each sale. Realization does not trigger Zakat events. Simply continue your annual Zakat cycle. On your Zakat date, assess total current wealth which will include any realized gain cash plus remaining unrealized gain assets. The annual method handles everything automatically.
3. Do not try to time sales around Zakat dates
Some investors consider selling appreciated assets before their Zakat date to avoid paying Zakat on unrealized gains. This is attempting to evade Zakat obligations and is impermissible. Make investment decisions based on financial merit, not on Zakat avoidance. If you hold valuable assets on your Zakat date, you owe Zakat on their current value. Accept this obligation and fulfill it properly.
4. Track that wealth stayed above nisab continuously
For Zakat to be due, your wealth must exceed nisab continuously for one complete lunar year. If capital losses temporarily brought wealth below nisab during the year, your hawl restarts when you cross nisab again. Keep rough quarterly checks to ensure wealth remained above nisab. If you had interruptions, adjust your Zakat date accordingly for accurate Zakat on capital gains.
5. Document annual calculations
Keep records of your Zakat calculations each year showing total wealth including capital gains, nisab comparison, and Zakat paid. This creates an audit trail, helps you track wealth growth patterns, and provides documentation for Islamic estate planning. Take screenshots of portfolio values on your Zakat date as supporting evidence for your calculation.
6. Reinvest gains confidently knowing Zakat continues
Do not hesitate to reinvest realized gains because of Zakat concerns. Reinvested gains continue being zakatable as part of new investment values, but this is the normal Zakat cycle. Productive reinvestment that grows wealth is encouraged in Islam. Pay your annual Zakat faithfully and confidently deploy capital for continued growth blessed by proper wealth purification.
The clarity of current value Zakat on capital gains
Once you understand that Zakat on capital gains simply means using current market value instead of purchase prices, the entire topic becomes straightforward. Your investments are worth what they are worth today. Calculate 2.5% Zakat on that current total value annually. Whether the value increased from gains or decreased from losses, whether gains are realized or unrealized, whether you held assets for months or years, none of these details change the simple method: current value on Zakat date times 2.5% if above nisab for one year. Focus on this clarity and Zakat on capital gains becomes routine and accurate.
Fulfill your Zakat obligation
Calculate Zakat on your total wealth including all capital gains
Whether you have unrealized gains in growing investments, realized gains from recent sales, reinvested gains in new positions, or a mix of all these, calculate your complete annual Zakat obligation accurately using current market values. Our calculator guides you through the proper method with clear explanations. Include all appreciated assets at current values for comprehensive Zakat on capital gains that fulfills this pillar of Islam with confidence.
Related guides for investors with capital gains
Disclaimer: This guide provides general educational information about Zakat on capital gains based on established Islamic jurisprudence from the four major schools of Islamic law and contemporary Islamic finance scholarship. Individual circumstances vary significantly based on specific investment types held, magnitude of gains and losses, realization timing, reinvestment patterns, tax situations in different jurisdictions, and personal financial complexity. The fundamental principle that Zakat is calculated on current market value including unrealized gains is firmly established in Islamic scholarship, but application to complex investment scenarios may require individual assessment. For questions about capital gains in specialized investments like options, derivatives, or structured products, capital gains in qualified retirement accounts with complex accessibility rules, capital gains from business ownership interests, capital gains interacting with debt obligations, or edge cases involving cross-border investments and currency fluctuations, consult qualified Islamic scholars with expertise in both Islamic commercial law and modern investment structures. This guide represents the mainstream scholarly consensus that current market value including all appreciation is the correct basis for Zakat calculation, with 2.5% due annually on qualifying wealth.
About this Content
Written by the Zakat Finance editorial team. All content is based on authentic Islamic scholarship and is reviewed regularly to ensure accuracy. The content aims to provide guidance on Zakat calculation and does not replace advice from a qualified Islamic scholar.
Last updated: February 2026
Method note: We present common scholarly approaches to Zakat calculation, encouraging consultation with trusted scholars for personal cases.