Capital Gains Tax

Capital Gains Tax (CGT) in Kenya is a tax levied on the profit realized from the sale of property or an investment. Here are the key points regarding Capital Gains Tax in Kenya:

1. Tax Rate: The CGT rate in Kenya is currently set at 5% of the net gain. This rate is applied to the profit made from the sale of the asset, not the total sale price.
2. Taxable Assets: Capital Gains Tax applies to gains from the sale of both movable and immovable property. This includes:
   • Land and buildings.
   • Shares in companies.
   • Other investment properties.
3. Exemptions: Certain transactions are exempt from CGT in Kenya, including:
   • The sale of property to transfer ownership to a spouse, former spouse, or immediate family member.
   • Transfer of property in cases of inheritance.
   • Sale of property that has been used as the owner’s primary residence for at least three years before the sale.
   • Transfer of property to an incorporated company in exchange for shares in the company, provided certain conditions are met.
   • Sale of land where the proceeds are less than Ksh 3 million.
4. Calculation of Gain: The gain is calculated as the difference between the selling price and the original purchase price (cost base) of the asset. Allowable expenses, such as costs incurred during the acquisition and disposal of the asset (e.g., legal fees, valuation fees, and improvement costs), can be deducted from the selling price to determine the net gain.
5. Filing and Payment:
   • CGT is a self-assessed tax, meaning the taxpayer is responsible for declaring the gain and paying the tax.
   • The taxpayer must file a CGT return and pay the tax within 30 days of transferring the property.
   • The payment is made through the Kenya Revenue Authority’s (KRA) iTax system.
6. Compliance: Taxpayers need to comply with CGT regulations to avoid penalties and interest charges for late payment or non-payment.
7. Impact on Property Market: The imposition of CGT can affect the property market by influencing the decision-making process of investors, buyers, and sellers.

In summary, Capital Gains Tax in Kenya is a tax on the profit from the sale of capital assets, currently levied at 5%. It applies to various properties and investments, with specific exemptions and requirements for compliance.