If you sell land, a building or shares at a profit, capital gains tax (CGT) is charged on the gain. The Finance Act, 2022 tripled the rate, and it is worth knowing what changed, because the change affects the price you should accept for an asset.

The change

  • Before 1 January 2023: the rate was 5% of the net gain.
  • From 1 January 2023: the rate is 15% of the net gain.

Parliament considered lower rates of 10% and 7.5% but kept 15%. A 5% rate was kept only for narrow cases, such as certain large investments made before the change by approved firms.

What it applies to

CGT applies to the transfer of property, which includes land and buildings in Kenya and shares in companies. A later Finance Act, in 2023, widened the scope to cover gains on the sale of shares in entities that derive significant value from Kenyan property. Some transfers are exempt, such as the sale of your own home that meets the conditions in the law and some transfers between spouses. Check each case.

How the gain is worked out

Net gain = sale price less cost less improvements less selling costs.

For a plot bought for KES 2,800,000, improved for KES 150,000 and sold for KES 6,500,000 with KES 195,000 of selling costs, the gain is KES 3,355,000, less any stamp duty and legal fees paid when you bought. At 15%, the tax is several hundred thousand shillings; at the old 5% rate it would have been a third of that. See selling a property: the capital gains tax steps for a full worked example, and the capital gains tax calculator to do your own.

Effect on decisions

With a higher rate, the costs you can deduct matter more. Keep every receipt for the purchase, stamp duty, legal fees and improvements; see the records every landlord should keep. The higher tax also changes the maths of whether to sell, to hold a rental or to restructure, so compare options; see rental yield explained.

Paying the tax

CGT is declared and paid through iTax before the transfer is registered, and the land registry asks for proof of payment. The free capital gains computation sheet works out the gain and the tax for several disposals, and the tax payments log keeps the receipts.

For investors in shares

Gains on listed shares have had special treatment in the past, and recent Finance Acts have changed how gains and losses are handled, so check the current rule for your investment. Our guide on the five-year limit on carrying forward tax losses covers one related change.

Plan before you sell

  1. Gather the purchase and improvement records.
  2. Work out the gain and the tax.
  3. Set the tax aside from the proceeds.
  4. Ask a registered adviser if the amount is large.

Landlords

If the property you are selling was let, settle your rental returns first; see monthly rental income tax or annual tax.

Rates and exemptions are set by the Income Tax Act as amended. Confirm them with KRA.