Is there Zakat on a tenancy deposit?
The answer
Deposits on assured shorthold tenancies (AST’s) must be protected with a government approved scheme. Under the Housing Act 2004 the landlord or agent must protect the deposit and issue prescribed information to the tenant within 30 days of receiving it.
In short: no Zakat on a tenancy deposit.
Explanation
A tenancy deposit is a sum of money which a landlord requires a tenant to pay at the start of the tenancy or which the landlord holds over from a previous tenancy with the same tenant. The money is security in case the tenant does not meet their obligations in connection with the tenancy[1].
Zakat is not binding on a security deposit as it is not in the possession of the tenant – neither constructively nor physically2.
And Allah knows best.
Mufti Faraz Adam
References
[1] https://www.tenancydepositscheme.com/landlords-FAQs.html
2(قَوْلُهُ: وَلَا فِيمَرْهُونٍ) أَيْ لَا عَلَى الْمُرْتَهِنِ لِعَدَمِ مِلْكِ الرَّقَبَةِ وَلَا عَلَى الرَّاهِنِ لِعَدَمِ الْيَدِ، وَإِذَا اسْتَرَدَّهُ الرَّاهِنُ لَا يُزَكِّي عَنْ السِّنِينَ الْمَاضِيَةِ، وَهُوَ مَعْنَى قَوْلِ الشَّارِحِ بَعْدَ قَبْضِهِ، وَيَدُلُّ عَلَيْهِ قَوْلُ الْبَحْرِ وَمِنْ مَوَانِعِ الْوُجُوبِ الرَّهْنُ ح وَظَاهِرُهُ وَلَوْ كَانَ الرَّهْنُ أَزْيَدَ مِنْ الدَّيْنِ ط. (حاشية ابن عابدين ج 2 ص 263 ط أيج أيم سعيد)
Based on the Hanafi school and on the question as it was asked. Another mufti may reach a different conclusion. Read the disclaimer.