By Angela Mutiso
Why This Should Concern Every Kenyan Property Owner
When Titus decided to sell his late father’s plot in Ruiru last year, he was shocked to learn about a 15% tax on his Gain. “Nobody in my family had ever mentioned this tax before,” he admits. “We almost completed the sale before our lawyer asked for our CGT compliance payment slip.” His story is familiar to many Kenyans dealing with property transactions today.
Since its reintroduction in 2015, Capital Gains Tax (CGT) has quietly become one of the most impactful yet misunderstood taxes affecting ordinary Kenyans. Whether you’re:
- A widow selling her matrimonial home
- A young professional investing in stocks
- An entrepreneur licensing software
- A farmer receiving compensation for acquired land, this tax could significantly impact your financial outcomes.
We sought to know from a tax expert what one should know about Capital Gains Tax and how this knowledge can help at crucial moments.
Q. The Basics: What Exactly Are We Taxing Here?
CGT targets your gain, not the total sale amount. For example:
- Purchase: 51-acre farm in 2016 for KSh
- Sell: Same farm in 2023 for KSh 9million
- Taxable amount: The KSh 4 million gain (not the full 9M)
Q. What is covered?
- Land and buildings (your home, rental property, commercial space)
- Company shares (NSE-listed or private)
- Intellectual property (apps, patents, copyrights)
Q: Who’s Affected?
During our interview, Titus noted: “I thought taxes like these were for rich businessmen, not someone selling a single plot.” He’s not alone in this misconception.
The law applies to:
- All Kenyan residents
- Foreigners selling Kenyan assets
- Businesses of any size
- Even informal partnerships
New since July 2023:
- Foreign companies selling shares if their Kenyan property value exceeds 20%
- Major shareholders (20%+) selling their stakes
Q. When the Tax Man Comes Calling
It’s not just straightforward sales. These situations also trigger CGT:
- Property swaps (like trading land for a business)
- Insurance payouts for destroyed buildings
- Loan defaults where property is forfeited
- Cancelled leases with compensation payments
Titus’ case was fascinating: “The buyer actually paid part of the amount in goats. We still had to calculate the market value of those goats for tax purposes.”
Q. Doing the Math: How Much Will You Pay?
The calculation formula is straightforward but often misapplied:
Net Profit = (Final Sale Price – Selling Costs) – (Original Price + Improvements)
CGT is a final tax and cannot be offset against any other income taxes. The capital losses can only be forwarded against future capital gains transaction to a maximum of 10 years.
What counts as valid expenses:
- At purchase: Legal fees, stamp duty, valuation
- During ownership: Major upgrades (new roofs, fencing)
- At sale: Broker commissions, transfer lawyers
- Loan/mortgage interest
- Preservation of value cost
What doesn’t count:
- Routine repairs (leaky faucets, repainting)
- Your time managing the property
- Travel to inspect the land
Real Example from Titus’s Transaction:
- 2016 Purchase: KSh 4M land + KSh 150K legal fees
- 2019 Improvements: KSh 800K access road
- 2023 Sale: KSh 7M price – KSh 300K agent fee
- Calculation:
- Total investment: KSh
- Net sales: KSh 7M – 300K = KSh 6.7M
- Taxable gain: KSh 6.7M – 4.95M = KSh 1.75M
- CGT Due: 15% of 1.75M = KSh 262,500
- Total investment: KSh
Q. Payment Deadlines That Can Trip You Up
Titus almost missed his: “I didn’t realize we had to pay before completing the transfer. That nearly delayed everything.”
Key dates:
- Payment is due by the 20th of the month following the transfer
- Late payments attract:
- 5% immediate penalty
- 1% monthly interest on balances
Q. Legal Ways to Reduce Your Bill
Through discussions, Titus learned about several exemptions he could have used in previous family transactions:
Family Situations:
- Transfers between spouses (even during divorce)
- Gifts to parents/children (but not cousins/uncles)
- Family companies meeting ownership rules
Personal Use:
- Your main home (if lived in for 3 consecutive years to selling year)
- Small plots (<KSh 3M value)
- Agricultural land (<50 acres outside towns)
Special Cases:
- Inherited property sales (if done within 2 years)
- Government-compulsory acquisitions
- Certain corporate reorganizations
Q. Common Pitfalls from Real Experience
Titus shared several lessons from his ordeal:
- Assuming small transactions are exempt – “Our first sale was just KSh 1.5M – we still owed to generate exemption slip for CGT tax.”
- Poor record-keeping – “We almost lost KSh 200K in deductions because we couldn’t find 2017 receipts.”
- DIY valuations – “Our ‘neighbourhood estimate’ was KSh 1M below the official valuation.”
- Missing deadlines – “That 5% penalty hurt more than the actual tax.”
Q. Why This Matters Beyond Just Compliance
Proper CGT management:
- It makes future property sales smoother
- Prevents disputes with buyers
- Reduces audit risks
- Can save significant amounts through planning
Titus concluded: “Now that I understand it, I realize this isn’t just about paying taxes. It’s about making smarter decisions with my family’s assets.”
Final Advice from Someone Who’s Been There
- Start early – Begin calculations before listing the property
- Keep every receipt – Even minor costs add up
- Consult professionals – “That KSh 15,000 valuation fee saved me KSh 80,000 in taxes.”
- Calendar your deadlines – Set multiple reminders
- Understand exemptions – Don’t pay what you don’t owe
Titus’s parting thought: “If I had known this before we started selling family properties, we’d have saved enough to buy another plot. Now I make sure all my relatives understand CGT before they make any moves.”
We hope that this guideline, which combines real experiences with practical advice, will help Kenyans manage CGT confidently.
For complex situations, always consult a tax professional—this will help you save money and give you peace of mind.
Interviewer Angela Mutiso – Editorial Consultant Accountant Journal.
Email: cananews@gmail.com
Interviewee – James Isaiah, Tax Expert & CEO, Meptax Consultium Ltd.
