By Bryson Makau
Rules, Exemption and Emerging Changes
Capital Gains Tax (CGT) remains one of the most significant yet overlooked taxes that applies to property transactions in Kenya. Despite its significance, many taxpayers (both individuals and companies) still struggle to understand when the tax applies, how it is calculated, and the exemptions available under the law.
CGT is a tax charged on gains arising from the transfer of property situated in Kenya. The tax applies to both individuals and companies and is currently levied at 15 per cent of the net gain realised from the transfer.
For CGT purposes, the term property is broadly defined and includes land, residential and commercial buildings, and investment shares, among other assets. Importantly, a transfer may attract CGT even where no consideration is received. For instance, gifting property to another person constitutes a transfer under the law and may trigger CGT if there is a realized gain.
The tax is calculated on the net gain arising from the transfer as follows:
Net Gain = Transfer Value less the Acquisition costs and other incidental costs, if any
The adjusted cost generally comprises the acquisition cost together with incidental expenses directly related to the acquisition or disposal of the property. These may include legal fees, valuation charges, advertising expenses, commission fees and stamp duty incurred during acquisition. While CGT generally applies to property transfers, the law provides several exemptions that taxpayers should be aware of.
First, one of the crucial exemptions involves corporate reorganisations. No gain or loss is recognised where property is transferred as part of an approved corporate restructuring, including incorporations, recapitalisations, acquisitions, amalgamations, separations, dissolutions, and similar transactions. The exemption applies where the restructuring is undertaken pursuant to a legal or regulatory requirement, a government directive, a compulsory acquisition, an internal group reorganisation involving entities that have been related for at least twenty-four months and where no transfer to a third party occurs, or where the transaction is approved by the Cabinet Secretary on public interest grounds.
The rationale behind this exemption is straightforward: such transactions typically involve a reorganisation of business structures rather than the realisation of economic gains. Another notable exemption applies where an individual transfers land property, provided the transfer value does not exceed KES 3 million.
Agricultural land transferred by individuals also qualifies for CGT exemption when the land measures less than 50 acres and is situated outside a municipality, gazetted township, or urban area.
This exemption presents a practical challenge in today’s devolved governance framework. Over the years, many areas previously considered rural have been elevated to municipal and urban centre status. Consequently, landowners may be uncertain whether their property still qualifies for the exemption. Before concluding a transaction, it is therefore advisable to confirm the area’s status with the Ministry of Lands, Public Works, Housing and Urban Development.
CGT relief is also available in respect of private residences. A residential property occupied continuously by its owner for at least three years immediately preceding the transfer is exempt from CGT. Temporary absences from the residence are generally disregarded when assessing continuous occupation.
The law further provides relief for transactions involving the estates of a deceased person. Property, including investment shares, transferred or sold for purposes of administering a deceased person’s estate is exempt from CGT, provided the transfer or sale is completed within two years from the date of death. Where the administration of the estate is delayed due to court proceedings, the two-year period begins running upon the final determination of the dispute. The Commissioner may also grant an extension of this time where appropriate.
Similarly, transfers of property into a registered family trust are exempt from CGT. This exemption is becoming increasingly relevant as more families embrace trusts as vehicles for succession planning, wealth preservation, and intergenerational wealth transfer.
Inherited property presents another area that often causes confusion among taxpayers. While the inheritance itself does not attract CGT, the tax arises when the beneficiary subsequently disposes of the inherited property at a gain within 5 years of the inheritance transaction.
A common question is how to determine the acquisition cost of inherited property when computing the gain. Is it the historical cost incurred by the deceased, or the market value at the date of inheritance?
The law provides that where inherited property is disposed of within five years of inheritance, the historical acquisition cost incurred by the deceased forms part of the adjusted cost. However, where the beneficiary disposes of the property after five years, the market value of the property at the time of inheritance is treated as the adjusted cost. This distinction is particularly important given that Kenya’s CGT regime does not provide for inflation indexation.
Looking ahead, the Finance Bill, 2026 proposes to broaden the scope of CGT by introducing taxation of certain indirect transfers of Kenyan assets by non-residents. The proposal seeks to tax gains arising from the disposal of shares that derive their value from assets located in Kenya, or from transactions that result in a change in ownership or group membership of Kenyan companies holding Kenyan property.
Once enacted, the proposal would bring many offshore share transactions and cross-border group restructurings within Kenya’s tax net, limiting opportunities to tax-plan through foreign holding structures.
Many taxpayers also wonder how the Kenya Revenue Authority (KRA) becomes aware of property transfers. In practice, KRA receives information through the stamp duty process, as property transfers must generally be assessed for stamp duty, and the stamp duty thereon paid before registration. This enables KRA to monitor property transactions and verify whether the vendor/seller has met their CGT obligations.
Although the law provides a range of exemptions, taxpayers should approach property transactions carefully. Failure to properly account for CGT may expose taxpayers to penalties and interest. Seeking professional advice before undertaking a transaction can help ensure compliance and identify legitimate tax-planning opportunities.
As property transactions continue to grow in Kenya, a clear understanding of CGT and its exemptions is essential not only for tax compliance but also for informed investment, business restructuring, and succession planning decisions.
The views expressed are those of the author and do not necessarily reflect the views of Ichiban Tax & Business Advisory LLP.
The author is a Tax Advisor at Ichiban Tax & Business Advisory LLP.
