If you earn rent from residential property in Kenya, there are two ways to be taxed. The simple route is Monthly Rental Income tax, or MRI, which is a flat percentage of your rent. The other is to be taxed under the normal income tax rules on your profit after expenses. Which is better depends on your costs.

Monthly Rental Income tax

MRI applies to residential rent when your gross rent is between KES 288,000 and KES 15 million a year. The rate is 7.5% of gross rent, with no deduction for expenses. You file monthly and pay by the 20th of the following month. A landlord with rent of KES 100,000 a month pays KES 7,500 each month, or KES 90,000 over the year.

See the filing steps in how to file a monthly rental income return.

The normal income tax route

A landlord may elect, in writing, to be taxed under the normal rules instead. Then you add up rent, deduct allowable expenses such as repairs, agent fees, interest, insurance and wear and tear, and pay tax on the profit at the individual rates. The rates run from 10% to 35%, and the personal relief and other reliefs apply.

This can cost less than MRI when expenses are high, and it allows a loss to be carried forward. It costs more when expenses are low, because profit is taxed at rates that can reach 30% and above.

A worked comparison

A landlord receives KES 1,200,000 in rent a year and spends KES 500,000 on repairs, loan interest and agent fees.

  • MRI: 7.5% of 1,200,000 = KES 90,000.
  • Annual route: profit is KES 700,000. Tax on the bands comes to about KES 147,400, and after personal relief of KES 28,800 it is roughly KES 118,600. Any other income pushes the profit into higher bands.

So MRI is cheaper here. The annual route wins when expenses take most of the rent: with expenses of KES 900,000 the profit is KES 300,000, the tax after relief is only about KES 3,000, and MRI's KES 90,000 would be far too much. The rental income tax calculator compares both routes with your own figures, and the free MRI versus annual rental tax comparison workbook lets you test a whole portfolio.

Withholding agents

If your tenant is a business, or you use a managing agent that is appointed by KRA, tax may be withheld from the rent before you receive it. Withholding on residential rent through appointed agents is 7.5%. Make sure you can claim that credit against your own tax. The withholding tax on rent calculator shows how much is held back.

VAT on commercial rent

Residential rent is exempt from VAT. Commercial rent may be VAT-able once your supplies pass the registration threshold; see VAT for small businesses in Kenya.

Keeping track of rent

Whichever route you choose, keep proof of every rent receipt and expense. The free monthly rental income (MRI) tracker records each unit and each month, works out the tax and gives you the figures for your return. The tax payments log keeps your payment receipts together.

Selling a property

When you sell, capital gains tax applies to the gain. Estimate it with the capital gains tax calculator.

Rules, rates and limits are revised by Finance Acts. Confirm the current position with KRA or a registered tax advisor before electing a route.