Beginning 1st January, 2023, the applicable Capital Gains tax (CGT) shall be 15% on the net gain from the previous rate of 5%. This comes as a result of the Finance Act, 2022 (the ‘Act’) which was passed into law by President Uhuru Kenyatta on 21st June, 2022.
The Act has amended the Third Schedule of the Income Tax Act, Chapter 470, by increasing the CGT from 5% to 15%.
CGT is chargeable on the whole gain which accrues to a company or an individual on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January, 2015, the year in which CGT came into effect.
A transfer takes place; Where a property is sold, exchanged conveyed or disposed off in any manner (including by way of gift), on the occasion of loss, destruction of the property or on the abandonment, surrender, cancellation or forfeiture of the rights to the property.
CGT is declared and paid by the seller of the property if the actual capital gain is positive.
Pursuant to the Act, the CGT applicable from early 2023, will be 15% on the net gain. Net gain is defined as Transfer value minus the Acquisition and Incidental costs concerning the subject property. The computation is as highlighted below;
Net Gain= (Transfer Value-Incidental Costs on Transfer) – Adjusted Cost (Acquisition Costs + Incidental Costs on Acquisition + Any enhancement costs).
However, there are certain transfers that are exempt from CGT as per the 1st Schedule of the Income Tax Act. They include; Income that’s taxed elsewhere, for example, property dealers, Issuance by a company of its own shares or debentures, Transfer of assets between spouses, Disposal of property during administration of the estate of a deceased, among others.
Effect of the Increment of CGT from 5% to 15%.
Property owners, developers and investors will pay higher levy charges upon sale of properties.
This increase of CGT will create a higher source of revenue for the Government of Kenya from both organizations and individuals.
Kindly find a copy of the Finance Bill, 2022 here.
Please contact us at Info@cfllegal.com should you require further information.
