Building on our understanding of real estate taxes, let’s dive deeper into some additional taxes that property owners, sellers, and investors need to know about. These include capital gains tax, land rent, and rental income tax.
Capital gains tax
Capital gains tax is a tax levied on the net profit made from the transfer of capital assets such as land, buildings, or shares. It is governed by the Income Tax Act and administered by the Kenya Revenue Authority (KRA). The Act provides for a 15% tax on the profit made when selling property. The seller of a property is responsible for paying CGT within 30 days of transferring the property.
Exemptions from Capital Gains Tax
The Income Tax Act exempts the following transactions from Capital Gains Tax;
- Transfer of property between spouses or immediate family members
- Transfer of property as part of an inheritance
- Transfer of shares listed on the Nairobi Securities Exchange (NSE).
- The compulsory acquisition of land by the government for public use.
- Transfer of property for charitable purposes.
- Transactions that are less than 3Million
- Transfer of a private residence if the owner has occupied it continuously for at least 3 years before the transfer concerned.
- Transfer of an agricultural property that is less than 50 acres situated outside of an urban area.
- First-time transfer of land that has been adjudicated under the Land Adjudication Act or Land Consolidation Act.
- Transfer of property as part of internal restructuring within a corporate group, provided they do not involve third parties.
- Land Rent
Land rent is charged on leasehold properties by the State Department for Lands and Physical Planning. The land rent payable is stated on the Certificate of Title and is revisable during the renewal and extension of leases. It is paid annually.
Tip: Keep your receipts as proof of payment to avoid disputes when renewing or transferring leases.
- Rental Income Tax
This is a tax levied on income earned by property owners from renting out residential or commercial properties.
For Residential properties, property owners who earn a rental income of between Ksh 288,000 and 15 million annually (24,000 – 1.25 million monthly) are eligible to pay the rental income tax. It is charged at a flat rate of 10% on the gross monthly rent collected with no deductions allowed for expenses. The tax is paid monthly.
For commercial properties and residential properties whose annual rental income exceeds Ksh 15 million, the tax is charged at a rate of 30%. Tax is levied on the net rental income after deducting allowable expenses such as repairs and maintenance costs.
Properties owned by the government and those earning less than Ksh 288,000 annually (Ksh 24,000 per month) are not subject to rental income tax.
