IMPACT OF TRIPLING OF CAPITAL GAINS TAX ON PROPERTY SALES IN KENYA EFFECTIVE JANUARY 1 2023
The Finance Act of 2022 amended the Income Tax Act, increasing the rate of capital gains tax, or CGT, from 5
percent (%) to 15 percent (%), effective from January 1, 2023.
CGT is a tax imposed on the transfer of property situated in Kenya that was acquired on or after January 2015.
A transfer of property includes the sale, exchange, conveyance, or other disposition of property, as well as the
destruction, abandonment, surrender, cancellation, or forfeiture of property. Examples of properties that may
incur CGT when transferred include land, buildings, securities, and shares.
The rate of CGT is determined based on the specific circumstances of the transfer. For example, a firm certified
by the Nairobi International Financial Centre Authority that invests KES 5 billion in Kenya and transfers the
investment after five years will be subject to the rate that was in effect at the time of the investment. This means
that if the firm made the investment before the CGT rate was increased to 15 percent, it would still be subject to
the lower rate of 5 percent when it makes the transfer.
Allowable expenses for the purpose of computing CGT in Kenya include costs incurred in relation to the transfer
of property, such as loan/mortgage interest, advertising costs, valuation costs, legal fees, and enhancement
costs.
To compute CGT, the net capital gain is calculated by subtracting the allowable expenses and any exemptions
from the total capital gain. For example, if the total capital gain on the transfer of a property is KES 10 million and
the allowable expenses are KES 2 million, the net capital gain would be KES 8 million (KES 10 million – KES 2 million).
The CGT due would then be calculated by applying the applicable rate (in this case, 15 percent) to the net capital
gain, resulting in a CGT liability of KES 1.2 million (KES 8 million x 15%).
To pay CGT in Kenya, the individual or entity responsible for the transfer must file a return with the Kenya Revenue
Authority within three months of the transfer. The tax must then be paid within 30 days of filing the return.
There are certain exemptions to CGT in Kenya, such as the transfer of property for the purpose of securing a
loan, the transfer of assets between spouses, the transfer of shares listed on the Nairobi Securities Exchange,
and the transfer of property by a creditor for the purpose of returning property used as security for a debt or loan.
We believe that the triple increase in capital gains tax may result in: Decreased demand for property, leading
to a slowdown in the real estate market; Decreased supply of property as some owners may choose to hold onto
their property rather than sell and pay higher taxes; Decreased investment in property as higher taxes may
discourage new investors; Negative impact on economic growth in Kenya, including potential consequences for
the construction and real estate industries and related industries such as lending and insurance; and Decreased
commission for property agents as some sellers may reduce commissions in response to the higher tax burden.
We hope this information is helpful in understanding the capital gains tax laws and computation in Kenya. Please
note that the contents of this newsletter are intended to provide a general guide to the subject matter. It should
not be relied upon without legal advice on its contents.
Should you require further information or legal assistance on Compliance or any other legal issue, kindly feel free
to contact us at info@wka.co.ke, www.wka.co.ke, +254 798 03 580, Nairobi Hub: Parklands, Valley View
Business Park, 6th Floor, City Park Drive, Off Limuru Road
*Author-William Karoki-Managing Partner-WKA ADVOCATES
