Capital Gains Tax on Real Estate in Kenya: Comprehensive Guide for Investors and Homeowners

Table of Contents

1. Introduction

   
   

2. The Legal Framework of Capital Gains Tax in Kenya

   
   

3. Rationale and Purpose of Capital Gains Tax

   
   

4. When Does Capital Gains Tax Apply?

   
   

5. Exceptions and Exemptions to Capital Gains Tax

   
   

6. Allowable Expenses in Calculating Capital Gains

   
   

7. Step-by-Step Guide to Calculating Capital Gains Tax

   
   

8. How to Pay Capital Gains Tax in Kenya

   
   

9. Recent Developments and Court Cases on CGT

   
   

10. Practical Impact of CGT on Real Estate in Kenya

    
    

11. CGT and Real Estate Investors: Key Considerations

    
    

12. Common Challenges and Compliance Issues

    
    

13. Penalties for Non-Compliance with CGT Rules

    
    

14. Planning Strategies to Minimize CGT Liability

    
    

15. CGT and Property Prices in Kenya

    
    

16. Future Outlook of Capital Gains Tax in Kenya

    
    

17. Key Takeaways for Property Sellers and Buyers

    
    

18. Conclusion

    
    

19. Frequently Asked Questions (FAQs)

1. Introduction

Capital Gains Tax (CGT) on real estate in Kenya has become an increasingly important aspect of property ownership, transfer, and investment. With Kenya’s real estate market growing rapidly, CGT is now one of the most significant taxes that property sellers must account for.

In January 2023, the CGT rate rose from 5% to 15%, drastically altering how property owners plan sales. Whether you are selling land, an apartment, or commercial property, CGT directly impacts your net returns.

This guide provides a comprehensive look at CGT in Kenya in 2025, including the law, exemptions, calculation methods, and recent case law shaping enforcement.

2. The Legal Framework of Capital Gains Tax in Kenya

CGT is governed by the Income Tax Act (Cap 470, Laws of Kenya) and enforced by the Kenya Revenue Authority (KRA).

• CGT was suspended in 1985 but reintroduced in 2015.

  
  

• Initially set at 5%, the Finance Act 2022 amended section 34(1)(j) of the Income Tax Act to increase the rate to 15%, effective 1 January 2023.

  
  

• The tax is payable on the net gain from the sale or transfer of property.

  
  

• Payment must be made on the earlier of:

  
  

  • Full purchase price received, or

    
    

  • Registration of transfer at the Land Registry.

3. Rationale and Purpose of Capital Gains Tax

The rationale for CGT includes:

• Revenue generation – CGT contributes to Kenya’s tax base.

  
  

• Fairness – It taxes profit, not gross transaction value.

  
  

• Regulation – Discourages speculative trading in land.

  
  

• Infrastructure support – Government uses CGT to finance development projects.

4. When Does Capital Gains Tax Apply?

CGT applies in cases of transfer of property, including:

• Sale or disposal of land, buildings, or real estate shares.

  
  

• Transfers by way of gift (with or without consideration).

  
  

• Destruction, loss, or compulsory acquisition of property (unless proceeds are reinvested).

  
  

• Expiration, cancellation, or abandonment of rights in property.

5. Exceptions and Exemptions to Capital Gains Tax

The law provides several exemptions to ensure fairness:

1. Transfer to secure a debt – e.g., using property as loan collateral.

   
   

2. Spousal transfers – including divorce settlements.

   
   

3. Immediate family transfers – to children or parents.

   
   

4. Charitable transfers – to registered charities.

   
   

5. Sale of a primary residence – if owner has lived there for at least 3 years.

   
   

6. Agricultural land – below 50 acres in municipalities or 100 acres outside.

   
   

7. Low-value transactions – transfers not exceeding KES 3 million.

   
   

8. Corporate restructuring – where approved by the Cabinet Secretary.

6. Allowable Expenses in Calculating Capital Gains

When computing net gain, the following can be deducted:

• Acquisition or construction costs.

  
  

• Stamp duty and registration fees.

  
  

• Legal and valuation fees.

  
  

• Advertising and marketing expenses.

  
  

• Loan/mortgage interest.

  
  

• Costs of improvements/enhancements.

7. Step-by-Step Guide to Calculating Capital Gains Tax

Example:

• Purchase Price + Costs: KES 6,200,000

  
  

• Sale Price: KES 10,000,000

  
  

• Incidental Costs: KES 500,000

  
  

Net Gain = Sale Price – (Purchase + Costs)= 10,000,000 – (6,200,000 + 500,000)= KES 3,300,000

CGT = 15% × Net Gain = 15% × 3,300,000= KES 495,000

Thus, the CGT payable is KES 495,000.

8. How to Pay Capital Gains Tax in Kenya

1. Log into the KRA iTax Portal.

   
   

2. Declare the transfer and generate a payment slip.

   
   

3. Pay via cash, cheque, or RTGS at KRA-appointed banks.

   
   

4. Submit acknowledgment receipt.

   
   

Failure to comply may stall property transfer at the Land Registry.

9. Recent Developments and Court Cases on CGT

9.1 Finance Act 2022 and CGT Rate Increase

The Finance Act 2022 raised CGT from 5% to 15%, effective January 2023, making Kenya’s CGT among the highest in East Africa.

9.2. Dhanjal v Commissioner of Domestic Taxes (Appeal E619 of 2023) [2024] KETAT 1259 (KLR) (23 August 2024) (Judgment)

Issues:

• Can the market value at inheritance be used as acquisition cost for CGT?

• Was the Kenya Revenue Authority (KRA) justified in disallowing this and raising higher CGT?

Determination:

• Tribunal ruled market value at inheritance (exempt from stamp duty) qualifies as acquisition cost.

• Appellant’s valuation evidence accepted; KRA’s disallowance overturned.

Significance:

• Ensures fair CGT calculation on inherited property using market value, protecting taxpayers from inflated taxes due to zero acquisition cost.

• Sets precedent clarifying CGT computations on inherited real estate in Kenya.

9.3 Bhatt v Commissioner of Legal Services and Board Coordination (Income Tax Appeal E182 of 2023) [2025] KEHC 9983 (KLR) (Commercial and Tax) (4 July 2025) (Judgment)

Issues:

• Did CGT liability arise at share sale agreement in 2022 or on regulatory approval in 2023?

• Should the CGT rate be 5% (2022) or 15% (2023)?

Determination:

• Legal transfer effective after 2023 regulatory approvals; therefore, 15% CGT rate applies.

• Appellant’s argument on legitimate expectation rejected; tax paid at 5% deducted from total.

  
  

Significance:

• Confirms tax point for CGT is legal transfer date, not agreement or payment date.

• Guides taxpayers and authorities on CGT timing amid regulatory delays.

• Clarifies rate application for transactions requiring approvals.

9.4. Haria v Commissioner of Domestic Taxes (Income Tax Appeal E171 of 2024) [2025] KEHC 11504 (KLR) (Commercial and Tax) (1 August 2025) (Judgment)

Issues:

• Is CGT due at sale/payment date or later registration/stamping?

• Which CGT rate applies: 5% or 15%?

• Does the burden of proof in Tax Procedures Act violate constitutional rights?

Determination:

• CGT due at sale and payment date (30 Dec 2022); 5% rate applies.

• KRA’s higher rate assessment quashed as unlawful retrospective tax.

• Burden of proof provisions upheld as constitutional.

Significance:

• Confirms CGT tax point is the economic transaction date.

• Prevents retroactive taxation due to later administrative steps.

• Clarifies taxpayer burden of proof, strengthening fair tax dispute resolution.

These summaries provide clear, concise explanations tailored for law firm clients and professionals seeking insight on CGT legal precedents in Kenya.

9.5 Key Implications

1. Courts back strict enforcement by KRA.

   
   

2. Buyers and sellers must conduct thorough due diligence.

   
   

3. Exemptions must be statutory and provable.

   
   

4. Non-compliance can delay transfers or attract penalties.

10. Practical Impact of CGT on Real Estate in Kenya

• Sellers may increase property prices to cover CGT.

  
  

• Buyers face higher transaction costs.

  
  

• Developers must factor CGT into feasibility studies.

  
  

• Family land transfers are under greater KRA scrutiny.

11. CGT and Real Estate Investors: Key Considerations

Investors should:

• Always include CGT in ROI analysis.

  
  

• Keep all receipts and improvement records.

  
  

• Explore available exemptions.

  
  

• Consult tax lawyers for structuring high-value deals.

12. Common Challenges and Compliance Issues

• Poor record keeping.

  
  

• Ignorance of exemptions.

  
  

• Delays in KRA clearance.

  
  

• Complexity in succession and corporate transactions.

13. Penalties for Non-Compliance with CGT Rules

• Late payment penalty: 5% of tax due.

  
  

• Interest: 1% per month on unpaid tax.

  
  

• Registration delays until compliance.

14. Planning Strategies to Minimize CGT Liability

• Utilize family exemptions and primary residence relief.

  
  

• Deduct all allowable expenses.

  
  

• File and pay on time.

  
  

• Seek legal advice for tax-efficient structuring.

15. CGT and Property Prices in Kenya

CGT has slightly increased property prices since sellers pass the cost to buyers. However, demand in urban centers remains strong, keeping the market active.

16. Future Outlook of Capital Gains Tax in Kenya

• Possible further rate adjustments as government broadens tax base.

  
  

• Discussions on harmonizing CGT with withholding tax.

  
  

• Likely more litigation as investors challenge KRA decisions.

17. Key Takeaways for Property Sellers and Buyers

• CGT is 15% of net gain.

  
  

• Exemptions exist for family, agricultural, and low-value transfers.

  
  

• Courts interpret CGT law strictly in favor of KRA.

  
  

• Compliance is essential for smooth property transactions.

18. Conclusion

Capital Gains Tax is a critical element of real estate transactions in Kenya. Sellers, buyers, and investors must understand the tax, utilize exemptions, and comply with KRA requirements to avoid penalties and delays.

Our law firm specializes in real estate and tax law. Contact us today for expert legal guidance on CGT compliance and structuring property investments.

19. Frequently Asked Questions (FAQs)

Q1: What is the current Capital Gains Tax rate in Kenya?

It is 15% of net gains from property transfers (as of 2025).

Q2: Is inheritance subject to CGT?

No. Transfers through succession are exempt.

Q3: Does selling my home attract CGT?

Not if it is your primary residence for at least 3 years.

Q4: How soon should CGT be paid?

Before or at transfer registration, whichever is earlier.

Q5: What are the penalties for non-payment?

5% penalty on tax due plus 1% monthly interest.

Q6: Can corporate restructuring be exempt from CGT?

Yes, if approved by the Cabinet Secretary for Finance.

Capital Gains Tax on Real Estate in Kenya: Comprehensive Guide for Investors and Homeowners