Landlords received some good news in the Finance Act, 2023: the flat tax on residential rent was reduced from 10% to 7.5% of gross rent, from 1 January 2024. For many landlords it is a small but welcome saving.
What changed
- The rate is 7.5% of gross residential rent, instead of 10%.
- It applies to landlords whose gross residential rent is between KES 288,000 and KES 15 million a year.
- It remains a flat tax with no deduction for expenses, filed and paid monthly, by the 20th of the following month.
What it saves
On rent of KES 100,000 a month, the tax fell from KES 10,000 to KES 7,500, a saving of KES 30,000 a year. On KES 400,000 a month it falls from KES 40,000 to KES 30,000. Work out your own figure in the rental income tax calculator.
Does it change which route is cheaper?
A lower flat rate makes the flat tax more attractive compared with the annual route. Expenses matter: if your costs are high, taxing the profit on the annual route can still be lower, but the break-even point has moved in favour of the flat tax. See monthly rental income tax or annual tax for a worked comparison, and the free MRI versus annual rental tax comparison workbook to test your own properties. Landlords can elect, in writing, to be taxed under the normal rules.
Advertisement
What to update
- Your monthly return and tracker. The free monthly rental income (MRI) tracker and the rent receipt book take the rate from a rates sheet; set it to 7.5%.
- Agents. Appointed agents withhold 7.5% on residential rent; check statements show the right amount; see withholding tax on rent.
- Your projections. Use the rental property investment analyser to see the effect on your yield; see rental yield explained.
Filing
Filing steps are the same; see how to file a monthly rental income return and how to register for rental income tax on iTax. For rent earned before 2024, the old rate applies to that period.
What did not change
- The tax applies to residential rent; commercial rent is taxed differently and VAT may apply; see VAT on commercial rent.
- Short-stay income is generally business income; see tax on Airbnb and short-stay rentals.
- Selling a property still attracts capital gains tax; see selling a property: the capital gains tax steps.
Questions landlords ask
Does the lower rate apply to my old rent? The new rate applies from 1 January 2024, so rent for earlier periods is taxed at the rate that applied then. Check your returns for the months around the change to make sure each uses the right rate.
Do agents have to use the new rate? Agents that withhold on residential rent should now apply 7.5%. Compare their statements with your own records, and ask for a corrected statement if the figures do not match.
Should I move from the annual route? Run your real numbers through the rental income tax calculator and the MRI versus annual comparison workbook. The right answer depends on your costs, which is why the comparison matters more than the headline rate.
What records should I keep? Keep receipts for every rent payment and the filing receipts for every month; see rent receipts and tenant deposits.
Is anything else changing? Tax law moves every year. See how to follow tax changes in Kenya for how to stay informed, and capital gains tax increased to 15% for the tax that applies when you sell.
Rates and limits are set by the Income Tax Act as amended. Confirm them with KRA.