Capital Gains Tax in Kenya-Accounting Perspective

Capital gains tax in Kenya is a form of income tax levied on the profit earned from the sale or transfer of a capital asset. Capital assets may include land, buildings, shares, and other investment properties. In simple terms, if you sell an asset at a higher price than you purchased it for, the difference—known as a capital gain—is subject to taxation. From an accounting perspective, understanding how to calculate, report, and comply with CGT obligations is crucial for both individuals and businesses. Whether you’re disposing of real estate or transferring shares, staying compliant with the regulations surrounding capital gains tax in Kenya is essential to avoid penalties and ensure accurate financial reporting.

Key Features of Capital Gains Tax:

· Taxable Events: CGT is triggered when you:

Sell a property
Transfer ownership (e.g., gifting or inheritance in some cases)
Exchange one asset for another
Sell shares or securities

· Rate of Tax: The rate of CGT varies by country.

In Kenya, CGT is currently charged at 15% on the net gain, effective from January 1, 2023.
It is final tax, meaning no further taxes apply on that gain.

· Exemptions: Some transactions may be exempt from CGT. For instance:

Transfers between spouses
Sale of property used as a primary residence (in some jurisdictions)
Inheritance and gifts under certain conditions

Computation of capital gains tax in Kenya

Capital gain= the difference (profit) between selling price of the asset and the purchase/buying price of the asset.

(Capital gain)=selling price – (purchase price/buying price + improvement cost/related expenses)

Then the tax of 15% CGT is then applied on the net gain (capital gain) to complete the computation of capital gain tax.

Example (Kenyan Context):

Bought land for KES 2 million
Sold it later for KES 3 million
Capital Gain = KES 1 million
CGT (15%) = KES 150,000 payable to Kenya Revenue Authority (KRA)

Capital gain= KES3million – KES2million

Profit=KES 1million

Capital gain tax= 15% of 1million which is KES 150000.

Background and overview of Capital Gains Tax in Kenya.

CGT was introduced in Kenya in 1975 and suspended on 13 June 1985 – when Kenya was seeking to spur growth in the mining sector, real estate market and deepening local participation in capital markets. These hitherto distant aims appear to have been realized with the Nairobi Securities Exchange (NSE) consistently being ranked among the top five bourses in Africa and the robust growth and returns witnessed in the real estate sector which has been cited as a significant pillar of economic growth particularly over the last decade.

The Finance Act 2014 amended the Eighth Schedule of the Income Tax Act (“ITA”) and as a consequence, CGT was reintroduced with effect from 1 January 2015. The reintroduction of the capital gains tax regime in Kenya is expected to widen the tax net and increase tax revenue collection for the government. In addition, from a regional integration perspective, the reintroduction of CGT is seen as a step towards bridging the differences in fiscal and tax policies between the East African States by aligning Kenya to its neighboring countries that impose tax on capital gains.

Applicability of Capital Gains Tax in Kenya

CGT is chargeable on the net gain accruing to a company (interpreted widely) or an individual (resident or non-resident) on or after 1st January 2015 on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January 2015, at a rate of 5% of the net gain. CGT is a final tax and cannot be offset against other income taxes.

When is CGT Applicable?

Here are the main situations where Capital Gains Tax applies, particularly in Kenya:

Sale of Land or Buildings
when you sell a parcel of land, a commercial building, or residential property (not your primary home), CGT is applicable on the profit made.
Transfer of Shares or Securities
when you sell shares in a private or public company and earn a gain.
Exchange of Property
If you trade one asset for another (e.g., land for a vehicle) and a gain is realized, CGT may be triggered.
Gifts and Transfers (with exceptions)
Gifts or transfers of property that result in gain may be taxable, except when transferred between:
- Spouses
- Immediate family members under inheritance or succession
Corporate Mergers and Acquisitions
when companies restructure, and assets are transferred at a gain, CGT applies unless exempted under law.

When CGT Does Not Apply (Exemptions in Kenya)

Transfer of Property Between Spouses
CGT is exempt when property is transferred from one spouse to another.
Inheritance or Gifts in a Will
CGT does not apply to property passed through inheritance or gifts under a registered will or succession.
Sale of Personal Items
Such as furniture, vehicles, or items not considered capital investments.
Property Used for Agricultural or Charitable Use
In some cases, agricultural land under specific sizes or assets used for charity may be exempt.
Primary Residence (in some countries)
In jurisdictions outside Kenya, CGT may not apply if it’s your main home. In Kenya, this exemption does not always apply.

Is Capital Gains Tax (CGT) Applicable to You? Let’s Simplify It.

At Junyan and Associates, we make tax clarity your reality. If you’re selling land, shares, or any investment property in Kenya, Capital Gains Tax (CGT) might apply — but don’t worry, we’re here to guide you every step of the way.

CGT applies when: