Ways to Avoid Capital Gains Tax (CGT) in Kenya
6 Smart Strategies to Legally Reduce Capital Gains Tax in Kenya (2025 Update)
Selling property in Kenya often feels like closing one chapter and opening another. Whether it’s cashing in on land you bought years ago or disposing off an underperforming rental property.
But many sellers get a shock when the deal is about to close and the lawyer calls them behind the tent and drops a bombshell: “I forgot to mention this to you. But we need to set aside money for Capital Gains Tax.”
Just like that, your payout shrinks by hundreds of thousands or even millions.
You can imagine the sting. That’s the sting of Capital Gains Tax (CGT). It’s legal, yes, but it can take a much bigger bite out of your long-awaited profit than you ever expected.
Here’s the good news: the law also offers smart, legitimate ways to reduce and even avoid CGT entirely. In this guide, I’ll break down what CGT is, how it works in Kenya, and share six strategies you can use to keep more of your money in your pocket.
But first things first.
What is Capital Gains Tax in Kenya?
Capital Gains Tax (CGT) is a tax on the profit (gain) you make when you sell property or shares. It only applies if you make a gain, not just because you sold.
CGT applies to:
Land and buildings
Company shares
Rights in property
The tax rate is 15% of the net gain.
How is CGT Calculated in Kenya?
CGT = 15% of (Selling Price – Acquisition Cost – Allowable Expenses).
Example:
Say you bought land in 2005 for Ksh 2 million.
You sell it in 2025 for Ksh 7 million.
Gain = 7M – 2M = Ksh 5 million.
CGT = 15% × 5M = Ksh 750,000.
This is why planning matters, because small decisions can cut down that tax drastically.
6 Legal Ways To Avoid Or Reduce Capital Gains Tax In Kenya
Here are six powerful, legal strategies to help you minimize your CGT in Kenya.
1. Don't Sell Your Property, Borrow Against It
Instead of selling a property when you need cash, consider taking a loan or a mortgage against it. This strategy avoids a "transfer of property," which is the event that triggers CGT.
By borrowing against the asset, you get the liquidity you need without a taxable event. This is a particularly useful option if you plan to use the funds for another investment or simply need access to the capital without giving up ownership of the property.
Example: Jane needs Ksh 3M. Instead of selling a plot worth Ksh 8M, Jane borrows Ksh 3M against it. He gets cash in hand and pays zero CGT.
2. Live in the Property You Plan to Sell for 3 years
Kenya’s tax law exempts from CGT the sale of your main home, provided you’ve lived in it for at least 3 continuous years.
That means:
If you own multiple homes, move into the one you plan to sell and stay there 3 years.
If you own bare land, build a house, live there for 3 years, and then sell.
This simple strategy can save you millions in taxes.
Example: Jane moves into her Kileleshwa apartment for 3 years before selling. She walks away with her full Ksh 15M, tax-free.
3. Gift the Property to Your Children Instead of Selling
Transfers of property by way of inheritance or gift to immediate family are CGT-exempt. Even better, when your children eventually sell, they benefit from a “step-up” in acquisition cost, meaning their cost is set at today’s market value, not the price you originally paid.
Example:
Say you bought 10 acres in 2000 for Ksh 1M.
In 2025, it’s worth Ksh 10M.
If you sell, your taxable gain is 9M → CGT = Ksh 1.35M.
If you gift it to your children, their acquisition cost becomes 10M.
If they sell at 10M, gain = 0 → no CGT payable.
This is one of the most tax-efficient ways to transfer family wealth.
4. Offset Capital Gains with Capital Losses
If you sell one property at a loss, that loss can reduce the taxable profit from another sale.
Example:
Sell Property A at a loss of Ksh 2M.
Sell Property B at a gain of Ksh 5M.
Instead of being taxed on 5M, you’re taxed on the net gain of 3M.
CGT = 15% × 3M = Ksh 450,000, instead of 750,000.
This strategy works best if you plan sales carefully and report them together.
5. Subdivide Agricultural Land Before Selling
Kenyan law exempts from CGT the sale of agricultural land under 50 acres, provided it’s outside municipalities, townships, or urban areas.
So, if you own a large farm, say 200 acres:
Subdivide it into parcels less than 50 acres each.
Sell the parcels individually → no CGT payable.
This is especially useful for rural landowners cashing in on family farms.
6. Keep Meticulous Records of All Expenses
Your taxable gain can be reduced by deducting legitimate costs you incurred while owning the property. But here’s the catch: you need proof.
Expenses you can deduct include:
Purchase price
Stamp duty and legal fees
Agent commissions
Improvements (e.g. fencing, boreholes, renovations, extensions)
Example: If you spent Ksh 500,000 fencing and improving your land, and you keep receipts, that amount reduces your gain, saving you Ksh 75,000 in CGT (15% of 500,000).
No receipts = no deduction. Keep paperwork safe.
In Conclusion
As you can see, the law gives you more flexibility than most people realize.
Capital Gains Tax in Kenya doesn’t have to drain your profits. With proper planning - borrowing instead of selling, using the main residence exemption, gifting property, offsetting losses, subdividing farmland, and tracking expenses - you can legally minimize or avoid CGT.
Before selling, pause and ask yourself: Is there a smarter way to structure this transaction? Sometimes, the difference between paying millions in tax and paying nothing comes down to strategy.
Thinking of selling property soon?
I help property owners like you plan ahead and structure deals in the most tax-efficient way possible.
Book a consultation now, and let’s create a tax plan that works for you.
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Written by CPA Joseph Wachira
The author is a Tax Director at ClearTax Consultancy