Residential rental income, also known as Monthly Rental Income (MRI) refers to income derived from renting out residential properties for use or occupation.
This tax applies to individuals and corporates with residential property only. The tax was effective from 1st January 2016. The landlord is required to pay rental income tax at a rate of 10% on the gross rent received either monthly, quarterly, semi-annually or annually, though the return must still be filed monthly. In addition, no expenses, losses or capital allowances are allowed for deduction from the gross rent at the time of filing the return. Therefore, a landlord earning gross rent of Ksh. 30,000 in a particular month will be required to pay rental income tax at the rate of 10%, that is 10%*30,000=3,000.
Every resident landlord receiving rent income of between Kshs. 144,000 and Kshs. 10 million per annum are obligated to file and pay for MRI, while those below or above this threshold file annual income tax returns and declare rental income together with income from other sources. However, effective 1st January 2021, the Finance Act 2020 amended the minimum and maximum rental income thresholds such that, the upper threshold of Monthly Rental Income increased from Ksh.10 million to Ksh.15 million per annum while the lower threshold increased from Ksh. 144,000 to Ksh.288, 000 per annum in order to align with the current lower individual tax bands.
The MRI return is filed on iTax, on or before the 20th day of the following month. For example, rent received in January is declared and tax paid on or before 20th February. Further, any month that the landlord does not receive any rent, he/she is required to file a NIL return.
Residential rental income is final tax. This means that, any income from rent that is subject to residential rental income tax is not liable to any other tax under the Act and therefore, persons are not required to declare the same in their annual income tax returns.
Some of the misconceptions such as the size, location, construction materials used in the building, age of the building or property owner do not count when computing taxes for residential rental income. The only categories exempt from MRI are non-residents and landlords earning more than Kshs. 10 million per annum. Additionally, taxpayers who wish to remain in annual rental income tax regime may do so by requesting the Commissioner in writing.
It is necessary that landlords with residential buildings, register their properties, file and pay any taxes due as required by Law, as this will boost the national kitty and facilitate meeting our developmental agenda as a country.
Tax Education Division, KRA