In Kenya, house owners may be required to pay Capital Gains Tax (CGT) when selling a secondary home, with the tax currently set at 15 per cent of the profit by the Kenya Revenue Authority (KRA).
According to KRA, Capital Gains Tax is payable by the person who has transferred property (seller) and is charged at the point of transfer of property.
This is upon registration of the transfer instrument in favour of the transferee, indicating transfer of interest in the property from the seller to the purchaser.
Effective 1st January 2023, the CGT rate was increased from 5% of the net gain to 15% of the net gain.
How Landowners Can Evade CGT
However, tax and financial management trainer CPA Wachira Joseph notes that homeowners can evade paying the tax levied on gains made from the transfer of property situated in Kenya, Capital Gains Tax (CGT).
“Sale of your primary home after living there for 3+ years is exempt from Capital Gains Tax,” he shared.
In his explanation, Wachira confirmed that homeowners who relocate and live in the property as their primary residence for at least three years may qualify for an exemption when selling the house.
“If you sell it immediately, KRA will charge 15% Capital Gains Tax on the profit made. But if you relocate into that home and ACTUALLY live there for the next 3 years, you will sell it tax-free,” he explained.
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What are Some of the Exemptions and Exclusions?
In Kenya, Capital Gains Tax applies to gains arising from the transfer of property, but according to KRA, there are several exemptions and exclusions designed to reduce the tax burden in specific circumstances.
Income already taxed under other provisions, such as that earned by property dealers, is exempt from CGT. Transfers involving a company’s own shares or debentures, or transfers conducted solely to secure or return a debt or loan, are also excluded.
Similarly, a personal representative transferring property to beneficiaries during the administration of a deceased person’s estate is exempt, as are transfers of assets between spouses or former spouses under divorce or bona fide separation agreements, or to immediate family members or companies wholly owned by family members.
Gains arising from the sale of securities traded on a Capital Markets Authority-licensed exchange are not subject to CGT.
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Other exemptions include the transfer of a private residence, provided the owner has occupied the property continuously for at least three years before the transfer, and transfers of land valued at no more than three million shillings.
Agricultural land under fifty acres outside urban areas is also excluded. Transfers related to estate administration, completed within two years of the death of the deceased or as extended by the Commissioner, are exempt, including sales or transfers into a registered family trust.
Additionally, transfers resulting from corporate restructuring, such as mergers, acquisitions, recapitalisations, internal reorganisations, or government-mandated directives, are excluded where there is no transfer to a third party and the action serves the public interest or is legally required.
These provisions ensure that CGT applies primarily to genuine profit-making transfers while protecting family, estate, and strategic corporate transactions from unnecessary taxation.
