I have lent £5000 to a family member to buy a property. The zakāt I need to pay this year is £4000. Can I absolve the family member of the debt and consider that as part of my zakāt payment?

Answer:

Zakāt will not be considered paid by absolving the debtor of the debt. An actual payment must be made. The creditor should give the zakāt amount to his debtor, and then the debtor should use that same amount to repay his creditor.

So, if Zayd had lent money or even sold something to ʿAbdullāh worth £5000 and gave ʿAbdullāh five months to pay, even if ʿAbdullāh is eligible to take zakāt, Zayd cannot forgive the payment of £5000 and consider that towards his payment of zakāt. Zayd should give ʿAbdullāh whatever amount of zakāt he needs to pay and then demand the payment back for his loan or sale. 

And Allah knows best
Ibrāhīm ibn Muḥammad