Everything you Need To Know about Capital Gains Tax

BLOG 26/10/2020

Buying and selling of property is one of the most thriving businesses in Kenya. Whether dealing with the sale of shares, land or buildings one can get good returns if transactions are done when the market is favorable.

After the negotiation on sale of certain property is finalized, then the seller or transferor of the property needs to bear in mind that they have an obligation to pay Capital gains tax.

Capital Gains Tax (CGT) is tax that is levied on transfer of property situated in Kenya whether it was acquired on or before January 2015.The rate of tax is 5% of the gain and is paid by the seller or the transferor of the property. It is a final tax and therefore not subjected to further taxation after payment.

There are three CGT types. CGT 1 is meant for land and buildings, CGT 2 is for shares and CGT 3 is for the exemptions which are all listed on itax. 

Property may be transferred from one party to another through different ways such as gifting, inheritance, selling e.tc. It is important to note that not all cases of transfer of property attract payment of CGT. The exempt situations include; income that is taxed elsewhere, sale of land by individual where the proceeds is less than 3 million, marketable securities, disposal of property for purpose of administering the estate of a deceased person and transfer of property between spouses as part of divorce settlement. Other exempt situations are, vesting property to a liquidator or receiver, transfer of machinery including motor vehicles, just to mention but a few.

When computing CGT, three terms are used. One is the net transfer value which is the transfer value less incidental expenses to the transfer. The second term is the adjusted cost of the property which is the cost of acquisition, expenditure for enhancement of preservation of the property; cost of defending title over property and incidental costs of acquiring property. The third term is Capital Gain or Loss which is Net transfer value less the adjusted cost of the property. When these details are captured in system during the payment process, then the amount payable will be 5% of the gain made. That’s a fair deal when dealing with property, right?


By  Margaret Gachina

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