Capital Gain is the difference between sales proceeds of a property to its incidental and acquisition costs.

Capital Gain Tax is a levied on transfer of property situated within Kenyan borders. It was originally introduced in 1975 and later revoked in 1985 to allow for the growth of property market. It has a 5% tax rate on the net gain of a property effective 1^st January 2015 according to Finance Act 2014 and is paid by the transferor.

When is Capital Gain Tax due for payment?

Capital Gain Tax is payable on the 20^th day of the subsequent month of the business deal or transaction.

Properties subjected to Capital Gain Tax in Kenya

1. Land/ Plot
2. Stocks/Shares

• Buildings

Capital Gain Tax on Mining and Petroleum Industry

Transfers in the mining and petroleum industries are taxed at rates of 30% and 37.5% for residents and non-residents with permanent establishments in Kenya respectively.

Is Capital Gain Tax a final tax in Kenya?

Yes. Transferor is not subjected to any further taxation after payment of the 5% tax rate.

In case of a capital loss, what happens?

The taxpayer transferring the property is allowed to carry forward the loss and utilize it in other transactions at a later date.

Capital Gain Tax Exemptions

1. Transfer of agricultural land that is less than 100 acres.
2. Transfer of property by a body expressly exempted under the Income Tax Act Cap. 470.

• Bestowing of property to a liquidator or receiver.

1. Income from transfer of property taxed elsewhere e.g. in the case of property developers.
2. Transfer of a deceased person’s property for purpose of estate administration.
3. Transfer of loans securities traded at NSE.

• Transfer of an individual residence occupied at least 3 years immediately before the transfer
• Transfer of machinery including motor vehicles

1. Transfer or sale of land by individual where the proceeds are less than Kshs. 3 Million
2. Issuing a company’s debentures or shares.
3. Transfer of property between spouses or former spouses or their immediate family.

• Public interest transfers authorized by Treasury during reorganization or restructuring of companies
• Transfer of securities of a recognized retirement benefits scheme registered with Commissioner

Application of Capital Gain Tax in Itax

For a taxpayer to be eligible for CGT exemption, he/she should avail the following documents for verification before the exemption takes place:

1. KRA PIN (Both transferor and transferee)
2. National ID (Both transferor and transferee)

• Transfer documents e.g. sale agreement, recent valuation report

1. Certificate of incorporation for limited companies
2. Other related documents

Guidelines on Capital Gains Tax (CGT)

Upon transfer of property, the taxpayer is required to prepare CGT1 form and presents it at KRA offices by the due date shown. The following information accompanies the form:

1. Transferor’s completed CGT 1 form
2. Copy of Sale or Transfer Agreement of the property

• Evidence of the incidental costs relating to the acquisition and transfer of the property

1. Copy of the title deed or ownership document for the property
2. Other related document that may be required by the Commissioner

 

Moments a property is deemed transferred

Property is deemed transferred when:

1. The property has been sold
2. The property has been exchanged

• There is a loss on the property e.g. through fire, floods

1. The property is deemed extinct
2. The property has been abandoned
3. There is surrender of the property

• The property has been forfeited
• There exists conveyance of the property

 

 

Payment of Capital Gain Tax

This tax can be paid in advance, in installments or at the end of an accounting period. This is done on iTax. Taxpayer receives payment slip on initiation of payment. This slip is valid for 30days beyond which it expires.