If you are paying a mortgage on the home you live in, part of the cost can come off your taxable income. Mortgage interest relief is easy to claim and can save a lot of tax over the life of a loan, but it needs the right paperwork.

What the relief is

Interest you pay on a loan to buy, build or improve a residential property that you occupy is a deduction from your income before tax is worked out. The deduction is limited to KES 360,000 a year, which is KES 30,000 a month. It is a deduction, not a credit, so the saving depends on your tax band: at 30%, a full deduction of KES 30,000 a month saves KES 9,000 in PAYE.

Who qualifies

  • The loan must come from a lender recognised for the purpose, such as a bank, a mortgage finance company, a SACCO or an approved institution.
  • The property must be in Kenya, used as your residence, and the loan must be for buying, building or improving it.
  • You must be the borrower and you must pay the interest.

Interest on a loan for a rental property is treated differently: it is a business cost against the rent, as in deductible expenses for landlords. Interest on a car loan or a personal loan does not qualify.

A worked example

Your annual mortgage interest is KES 420,000. Only KES 360,000 qualifies. If your top rate is 30%, the tax saving is KES 108,000 for the year. If your interest is KES 200,000, the saving is 30% of that, or KES 60,000. The tax reliefs calculator shows the saving for your own figures.

What to give your employer

Ask your lender for an annual interest certificate that shows the interest paid, the loan number and the property. Give it to your payroll officer, who applies the deduction in the months that follow. If you forgot, claim it in your annual return and attach the certificate. Keep a copy with your other records; the tax records checklist and document log has a place for it.

Checking it worked

Look at your payslip: taxable pay should be lower by the relief you claimed. Then check your P9 at year end against the certificate; see filing your employment return with a P9. You can also test the effect in the PAYE calculator.

Mistakes to avoid

  1. Claiming the loan repayment, which includes capital, instead of the interest only.
  2. Claiming for a property you rent out under the home relief.
  3. Forgetting to renew the certificate each year.
  4. Claiming more than the KES 360,000 limit.

If you are saving for a home

Other schemes exist to help first-time buyers, and rules on home savings plans change, so check the current position with KRA. Meanwhile a savings and sinking fund tracker keeps a deposit goal in view, and the loan affordability checker shows whether a mortgage is affordable before you sign. Our guide to the costs of buying property lists the other costs.

Limits and conditions are set by law and can change. Confirm them with KRA before you claim.

Common questions

Does the relief apply to a house I let out? No. Interest on a loan used to buy or build your own residence qualifies for this deduction. If you let a property, interest is treated as a business or rental expense where the rental route allows it.

What proof will my employer or KRA need? A certificate from the lender each year showing the interest paid, the loan's purpose and the property. Give a copy to payroll so it can deduct before PAYE, or claim it on your annual return.

Is there a limit on the deduction? Yes. The yearly limit is set in law and shown in the rates used by our PAYE calculator. Interest above the limit does not reduce your tax, so the benefit is capped.