what is capital gains tax in Kenya
What is Capital Gains Tax in Kenya?
Capital Gains Tax (CGT) is a tax on the profit you make when you sell or transfer of property located in Kenya. CGT was reintroduced on January 1, 2015 in Kenya. But it applies regardless of whether the property was acquired before 1st January, 2015.
What is the capital gains tax rate in Kenya?
The finance act of 2022 amended the CGT tax rate from 5% to 15% with effect from Jan 1, 2023.
Therefore the tax rates are as follows:
| From | To | Tax rate |
|---|---|---|
| Jan 1, 2015 | Dec 31, 2022 | 5% |
| Jan 1, 2023 | To date | 15% |
Which properties are subject to capital gains tax?
Land
Buildings
Shares not listed in Nairobi stock exchange. i.e. private equity.
Is capital gains tax a final tax in Kenya?
It is a final tax and cannot be subjected to further taxation.
Note: Taxpayers are not be allowed to carry forward any losses incurred by them against future capital gains from transfer to property.
Who should pay capital gains tax in Kenya?
The tax is to be paid by the seller or transferor of the property. And that can either be an individual or a company.
What constitutes a transfer of property in Kenya?
A property is considered to have been transferred where:
The property is sold, exchanged, conveyed or disposed of in any manner (including by way of gift); or
On the occasion of loss, destruction or extinction of property whether or not compensation is received; or
On the abandonment, surrender, cancellation or forfeiture of, or the expiration of rights to property.
How is capital gains tax calculated in Kenya?
The net gain is the difference between the net transfer value and the transferred asset's adjusted cost. This gain is the one that is taxed.
The value of the consideration or compensation for transferring the property less any associated incidental costs is its Net Transfer Value.
The cost of acquiring or building the property, the cost of improving its worth and/or preserving it, the cost of defending title to the property, if applicable, and the incidental costs of acquiring the property are combined to create the Adjusted cost.
Any sums previously approved as deductions under Section 15(2) of the Income Tax Act shall be subtracted from the adjusted cost.
It is the transferor's duty to demonstrate how much it cost to acquire the property.
Where this information is unavailable, the consideration for the purchase of the property shall be the lesser of the market value at the time of acquisition or the amount of consideration used to calculate the stamp duty payable on the transfer by which the property was acquired.
How will related party transactions be treated?
Two people linked where, they are directly or indirectly in the capital or administration of the other party's business.
KRA will make the required adjustments to ascertain the market price if there is a suspicion that a related party transaction may have reduced the transfer value in an effort to reduce capital gains tax.
Who is exempted from paying capital gains tax in Kenya?
Several transactions are excluded from capital gains tax in Kenya:
Transactions with transfer value of not more than three million shillings
Income that is taxed elsewhere as in the case of property dealers
Agricultural property of less than fifty acres where that property is situated outside a municipality, gazetted township, or urban area
Transfer of property for the purpose of securing a debt or a loan
Transfer of inheritance / succession
Transfer of assets between spouses
To a company where spouses or a spouse and immediate family hold 100% shareholding
1 private residence where individual owner has occupied the residence continuously for the last three year prior to the transfer.
Capital Gains Tax on Inherited Property in Kenya
Legally, capital gains tax does not apply to inherited property. However, if that inherited property is subsequently sold or disposed of at a profit, the profit realized from the sale will be subject to CGT. The base cost of the inherited property is typically the fair market value of the property at the time of inheritance.
Due date for filing and paying CGT in Kenya.
Tax Point or due date for filing and paying CGT is the earlier of the date of receipt of the full purchase price by the seller or registration of the transfer of title.
Example on how to compute capital gains tax?
Sure. Here's one.
The tax rate will be applied on this gain of Ksh. 1,4440,000.
The author is a senior tax consultant at ClearTax and can be reached via wachira@cleartax.co.ke
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