Are Deposits Held in an Offset Mortgage Account Subject to Zakat?
The answer
Mortgages are interest based lending transactions. Interest based transactions have been categorically forbidden. To engage in such transactions without necessity and exemptive circumstances is not permissible. One who has engaged in such transactions should endeavour to switch to an Islamic home purchase plan if available as soon as possible. Meanwhile, one must repent for engaging in such a contract.
In short: zakat is due on deposits held in an offset mortgage account.
Explanation
As opposed to a repayment mortgage, an offset mortgage is linked to one – or sometimes multiple – bank accounts. The amount of interest owed is reduced by the amount held in the linked accounts. In the interim, a person has access to this account and can withdraw deposits as required1.
Monies held in an offset mortgage account are subject to Zakat. Nevertheless, whilst Zakat purifies your wealth, interest based transactions and funds continuously contaminate funds. Thus, one should endeavour to set himself/herself free interest bearing transactions as soon as possible.
And Allah knows best.
Mufti Faraz Adam
References
1https://www.moneysupermarket.com/mortgages/what-is-an-offset-mortgage/
Based on the Hanafi school and on the question as it was asked. Another mufti may reach a different conclusion. Read the disclaimer.