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Capital Gains Tax (CGT) in Kenya

Capital Gains Tax (CGT) is an important aspect of Kenya’s tax regime, impacting individuals and companies involved in property transactions. Whether you’re selling land, buildings, or shares, understanding CGT is essential to ensure compliance with the law and avoid unexpected liabilities. This article provides an overview of CGT in Kenya, including its scope, rates, exemptions, and filing obligations, based on insights from the Kenya Revenue Authority (KRA) and expert tax perspectives.

What is Capital Gains Tax?

In Kenya, CGT is a tax levied on the profit (or gain) realized from the transfer of property, such as land, buildings, or shares. It applies to gains accruing to both individuals and companies when they dispose of property situated in Kenya, regardless of when the property was acquired. Reintroduced on January 1, 2015, after a long hiatus, CGT has undergone significant updates, with the tax rate increasing from 5% to 15% of the net gain, effective January 1, 2023, as per the Finance Act of 2022.

The "net gain" is calculated as the sales proceeds minus the acquisition cost and any incidental expenses related to the transfer. Importantly, CGT is a final tax, meaning that once paid, the gain is not subject to further taxation.

Scope of CGT

CGT applies to a wide range of transactions involving property transfers in Kenya. This includes:

  • Real Property: Sale or disposal of land, buildings, or other immovable property.
  • Shares and Securities: Sale or disposal of shares in companies, bonds, debentures, or other securities.
  • Derivatives: Sale or disposal of financial instruments such as futures, options, or swaps.
  • Intellectual Property: Sale or disposal of patents, copyrights, trademarks, or other intangible assets.

The tax is payable by the transferor (the seller) and is triggered at the point of transfer, typically upon registration of the transfer instrument in favor of the buyer.

Tax Rate and Calculation

The calculation of CGT involves several steps:

  • Determine the Base Cost: The base cost is the original purchase price or cost of acquisition of the asset.
  • Calculate the Capital Gain: Subtract the base cost from the selling price or disposal proceeds to determine the capital gain.
  • Apply the Tax Rate: The capital gain is then subject to the applicable CGT rate, which varies depending on the type of asset and the taxpayer's income level.

The current CGT rate in Kenya is 15% of the net gain, a significant jump from the previous 5% rate. For example, if you purchased a piece of land for Ksh 5 million and sold it for Ksh 7 million, incurring Ksh 200,000 in transfer-related costs, the net gain would be:

  • Sales Proceeds: Ksh 7,000,000
  • Less Acquisition Cost: Ksh 5,000,000
  • Less Incidental Costs: Ksh 200,000
  • Net Gain: Ksh 1,800,000
  • CGT Payable: 15% of Ksh 1,800,000 = Ksh 270,000

This amount must be paid before or at the time the transfer is registered at the lands office.

Exemptions from CGT

Not all property transfers are subject to CGT. Several exemptions exist to ease the tax burden in specific cases:

  • Low-value transactions: Transfers with a value of Ksh 3 million or less are exempt.
  • Agricultural property: Land under 50 acres situated outside municipalities, gazetted townships, or urban areas is not taxable.
  • Primary residence: The transfer of a private residence occupied continuously by the owner for at least three years prior to the sale is exempt.
  • Property securing debt: Transfers made solely to secure a loan or debt are not subject to CGT.
  • Taxed income: Gains taxed elsewhere, such as those earned by property dealers, are excluded.

These exemptions ensure that CGT targets significant capital transactions while sparing smaller or personal-use properties.

Filing and Payment Process

CGT is administered through the KRA’s iTax platform, making the process straightforward but requiring diligence. Here’s how it works:

  1. Initiate payment online: Log in to iTax (https://itax.kra.go.ke) using your KRA PIN and password, declare the CGT liability, and generate a payment slip.
  2. Make the payment: Present the payment slip at any KRA-appointed bank with the tax due. Payment can be made via cash, cheque, or Real-Time Gross Settlement (RTGS).
  3. Timing: The tax must be paid on or before the date the transfer documents are lodged at the lands office. Late payment can delay the registration process and attract penalties.

Failure to comply with CGT obligations can result in legal and financial consequences, so timely filing is critical.

Key Considerations

  • Capital losses: While CGT is a final tax, capital losses can be carried forward to offset future capital gains, providing some relief for unsuccessful transactions.
  • Professional assistance: Given the complexities of property valuation and tax computation, consulting a tax expert can ensure accurate filings and help secure waivers where applicable.
  • Non-residents: Non-residents disposing of Kenyan property or significant shareholdings must also comply with CGT rules, broadening the tax’s reach.

Why It Matters

CGT plays a vital role in Kenya’s tax system by capturing revenue from wealth-generating transactions. For property owners, understanding CGT obligations ensures compliance and avoids disputes with the KRA. Whether you’re an individual selling a family plot or a company offloading commercial real estate, staying informed about CGT can save time, money, and legal headaches.