One
of the most thriving businesses in Kenya is the buying and selling of
property. Once a buyer and seller agree on the property price, then the seller
or transferor of the property needs to bear in mind that they have an
obligation to pay Capital gains tax. President Uhuru Kenyatta
assented to the Finance Act, 2014 effectively reintroducing capital gains tax
through an amendment to the Eighth Schedule of the Income Tax Act (ITA) to to
reduce budget deficits and raise funds for infrastructure and development
projects. The move was aligning tax laws within the East African
Community, since Kenya was the only state that did
not levy taxes on capital gains. Kenya's levy is at the bottom
with Tanzania and Uganda charging being between 10%
to 30%.
What
is Capital Gains Tax?
Capital
Gains Tax (CGT) is tax that is levied
on transfer of property situated in Kenya acquired on or before
January 2015. The rate of tax is 15% of the gain and is paid by the
seller or the transferor of the property. It is a final tax and therefore not
subjected to further taxation after payment.
Capital
Gains Tax is separated into three types.
CGT
1 for land and buildings
CGT
2 for shares and
CGT
3 for exemptions.
Property
may be transferred from one party to another through different ways such as
gifting, inheritance, selling e.tc. It is important to note that not all cases
of transfer of property attract payment of Capital Gains Tax.
When
computing Capital Gains Tax, three terms are used.
Net
transfer value - The transfer value less incidental expenses to the transfer.
Adjusted
cost of the property - The cost of acquisition, expenditure for enhancement of
preservation of the property; cost of defending title over property and
incidental costs of acquiring property.
Capital
Gain or Loss- Net transfer value less the adjusted cost of the property.
When
these details are captured in system during the payment process, then the
amount payable will be 5% of the gain made.
Exemptions
on Capital
Gains Tax.
The
following transactions are exempt from Capital
Gains Tax because they are deemed to be non-profit transactions.
·
Charging property as security for a loan
·
Property (including investment shares)
transmitted under inheritance.
·
Transfer of a deceased’s property to the
personal representative;
·
Vesting of a Company’s property in the
liquidator by an order of the court during winding up.
·
Vesting of property in the Official Receiver or
Trustee in Bankruptcy.
·
Transfer of property to a beneficiary by a
trustee subject to a trust.
·
Sale of a deceased’s property to administer the
estate of the deceased provided the sale is completed within two (2) years of
the death of the deceased.
How
do I pay for Capital Gains Tax?
Capital
Gains Tax is due on or before transfer of property but not later than the 20th
day after the transfer. Payment is initiated online by
logging into iTax where
you generate a payment slip. You can then make payment by cheque or RTGS
at any KRA appointed bank. The payment slip expires within 30 days, so
you need to make payment within this period.
Conclusion:
As
a real estate agent in Kenya or a purchaser, please consult a tax or legal
expert to guide you so that you do not incur any penalties for unpaid tax. As a
buyer, please take into consideration the tax implications as you determine the
budget available for property purchase.
For
more details, give us a call on 0726982982.
