It is no secret that buying and selling property is one if not the most lucrative businesses in Kenya. Whether you’re dealing with the sale of shares, land or buildings you can get good returns if transactions are done when the market is favorable.
Capital Gains Tax (CGT) is tax that is levied on transfer of property situated in Kenya whether it was acquired on or before January 2015.
The rate of tax is currently 5% of the gain, and is paid by the seller or the transferor of the property. After the negotiation on sale of the property you’re acquiring is finalized, then the seller or transferor of the property needs to bear in mind that they have an obligation to pay the Capital gains tax.
Here’s what you need to know as far as the Capital Gains TAX is concerned in Kenya;
There are three Capital Gains Tax types. CGT 1 which is meant for land and buildings, CGT 2 which is for shares and CGT 3 which falls under exemptions. All listed on itax(an online tax services platform).
Generally, Property may be transferred from one party to another through different ways such as gifting, inheritance, selling e.tc. It is important to note that not all cases of transfer of property attract payment of CGT.
The exempt situations include; income that is taxed elsewhere, sale of land by the individual where the proceeds is less than Kes 3 million, marketable securities, disposal of property for purpose of administering the estate of a deceased person and transfer of property between spouses as part of divorce settlement. Other exempt situations are, vesting property to a liquidator or receiver, transfer of machinery including motor vehicles, just to mention but a few.
Recently, KRA issued guidelines on Capital Gains Tax (CGT) along with the prescribed self-assessment form (CGT 1) to be used in computing capital gains on property.
As a taxpayer you will be required to prepare self-assessment computations, subject to KRA approval, to determine the capital gains arising from their property sales.
Once the property is transferred, you will be required to prepare the CGT 1 form and submit it to KRA by the due date indicated.
KRA has also specified the information that will be required to accompany the CGT 1 forms:
- Completed CGT 1 form by the seller;
- Copy of Sale/Transfer Agreement of the property;
- Proof of the incidental costs related to the acquisition and transfer of the property;
- A copy of the title deed or ownership document for the property;
- Report from a registered valuer for property transactions between related parties; and
- Any other document/information that the Commissioner may require.
This latest communication from KRA sets the stage for the implementation of capital gains tax from the beginning of this year. The form and documentation requirement is fairly simple. However, there may be a challenge for owners of property acquired or developed many years back in terms of proof of costs of acquisition, development or enhancement.
There may be need for KRA to accept alternative proof of ownership since there are certain cases where it may be impractical to obtain formal records, bearing in mind that the statutory record keeping period is 7 years.