Capital Gains Tax (CGT) is a significant consideration for anyone selling property in Kenya. Reintroduced and then revised, understanding its application, calculation, and compliance requirements is crucial for property owners and investors in 2025. This guide breaks down the essentials of CGT on real estate transactions.
1. What is Capital Gains Tax (CGT) in the Context of Kenyan Real Estate?
Definition: A tax levied on the profit (capital gain) realized from the sale or transfer of property. Clarification of what constitutes "property" for CGT purposes (land, buildings). Distinction from rental income tax or stamp duty.
2. Current CGT Rate and Its Application (as of 2025)
The prevailing CGT rate (e.g., 15% as per recent amendments, confirm the current rate for 2025). When CGT is applicable (upon transfer of property). Who is liable to pay CGT (the seller/transferor).
3. How to Calculate Capital Gains
The formula: Net Selling Price - Adjusted Cost of the Property = Capital Gain.
- Determining the Net Selling Price: Gross sale price less incidental costs of disposal (e.g., agent's commission, legal fees for sale, valuation fees for sale).
- Determining the Adjusted Cost: Original acquisition cost PLUS incidental costs of acquisition (e.g., stamp duty paid, legal fees for purchase, survey fees) PLUS costs of enhancement or preservation of the property (e.g., major renovations, infrastructure improvements – must be capital in nature, not repairs).
4. Exemptions from Capital Gains Tax
Specific transactions or properties that may be exempt from CGT in Kenya, such as:
- Sale of a primary private residence (if conditions like continuous occupation for three years prior to sale are met – verify current rules).
- Transfer of property for securing a loan.
- Transfer between spouses.
- Gains from sale of shares listed on the Nairobi Securities Exchange (confirm if this still applies broadly or has specific conditions for property-holding companies).
- Property transferred as part of inheritance (CGT might apply on subsequent sale by beneficiary).
5. CGT Compliance: Declaration and Payment Process
The process for declaring and paying CGT to the Kenya Revenue Authority (KRA) via the iTax platform. Timelines for payment (usually before or upon transfer registration). Required documentation (e.g., valuation reports, sale agreement, proof of costs).
6. Rollover Relief (If Applicable)
Explanation of rollover relief if available in specific circumstances, e.g., reinvesting proceeds from sale of business assets (including property) into similar assets. Conditions and limitations.
7. Implications of Non-Compliance
Penalties and interest charges for late filing, late payment, or incorrect declaration of CGT. KRA's enforcement mechanisms.
Conclusion
Capital Gains Tax is an integral part of real estate transactions in Kenya. Proactive understanding of the 2025 CGT rules, accurate calculation of gains, and timely compliance are essential for property sellers to meet their tax obligations and avoid penalties. Seeking professional advice from a tax consultant or lawyer is highly recommended when dealing with property sales.
