In line with the amended Kenya Finance Act of 2022, the capital gains tax stands at 15% up from 5% effective January 2023. The government imposes capital gains tax on the profit generated from selling a capital asset like a stock, bond, or real estate property. They calculate it based on the sale price with only a few deductions.<\/p>\n\n\n\n
This blog aims at educating real estate investors on a few things regarding capital gains tax. It covers numerous subtopics to exhaustively help our readers understand this tax. Below are the subtopics.<\/p>\n\n\n\n
\u00a0In simple terms, the transferor of property imposes capital gains tax when transferring property in any location in Kenya. A transferor of property is a person or entity that is transferring ownership of a piece of real estate or other property to another person or entity. The transferor may be the current owner of the property or they may be an intermediary such as an estate executor or a trustee.<\/p>\n\n\n\n
The tax will take effect from properties acquired on or after 2015. The calculation is made from net gain of the sales profits. This is after deduction of the cost of acquisition and other subsidiary costs.<\/p>\n\n\n\n
Computing the capital gains tax is not rocket science, it is easy and straight forward. Below is the formula to use to determine the amount to pay.<\/p>\n\n\n\n
Net Gain = (Transfer value – Incidental Costs on Transfer) – Adjusted Cost (Acquisition Cost + Incidental Costs on Acquisition + Any enhancement Cost)<\/p>\n\n\n\n
Definition of terms<\/strong><\/p>\n\n\n\n refers to the amount by which the proceeds from the sale of an asset exceed the original cost of the asset. It is the difference between the sale price and the original cost, after taking into account any associated costs or expenses.<\/p>\n\n\n\n In the context of real estate, the transfer value is the amount at which the property sells, including the purchase price, closing costs, and any other expenses associated with the property purchase.<\/p>\n\n\n\n Incidental costs on transfer refer to additional expenses that may arise during the process of transferring assets or property from one person or entity to another. These costs can include legal fees, appraisal fees, and title search fees, among others. <\/p>\n\n\n\n When determining the overall cost of a transfer, consider these costs and include them in any agreements or contracts related to the transfer.<\/p>\n\n\n\n In accounting, we adjust the original cost of an asset for any changes, such as depreciation, amortization, or impairments. We use the adjusted cost to determine the current value of an asset. We use the adjusted cost to calculate the gain or loss on the sale of an asset and also to determine the cost basis of an asset for tax purposes.<\/p>\n\n\n\n When determining the overall cost of a transfer, consider these costs and include them in any agreements or contracts related to the transfer. The expenses include loan interest, marketing costs, valuation<\/a> costs, the asset enhancing costs\u00a0 and the legal fees during the transaction. There also other additional exemptions to this tax:<\/p>\n\n\n\n There are several questions regarding what exactly property transfer is. We have a compilation of different things that constitute transfer of a property.<\/p>\n\n\n\n The Kenya Revenue Authority has guidelines on how to pay this tax. For a better understanding of each step, below is a step by step guide on how to pay. Additionally, please note that you should make the payment no later than the 20th day after completing the transfer.<\/p>\n\n\n\n Last but least, it is important to take note that once the payment slip is sent to you via iTax, it expires within 30 days.<\/p>\n\n\n\n Generally, increase in taxes have an impact of reducing the incomes and this will be no exemptions on implementation of the capital gains tax. Sellers will experience decrease in their incomes after the sale of the land, buildings and company shares outside Nairobi Security Exchange.<\/p>\n\n\n\n The second probable impact is the possibility of a slight increase in the prices of the assets to accommodate the tax factor as well as inflation adjustments. This is common across various products and services, when taxes increase, the cost of the product or service also increases to cover the seller’s profit margins. On the hand, some investors may reduce the prices of properties as a way to avoid taxes on the gains. This is because the taxable net gain for the sale of land is at Ksh 3M and above.<\/p>\n\n\n\n Real estate offers relative safety; property values are less volatile than stocks and less influenced by market fluctuations. With increasing tax rates, the Kenyan real estate sector remains resilient due to high demand, especially in residential properties. Due to urban population growth and rising housing demand, people seek homes to settle with their families.<\/p>\n\n\n\n Further, the real estate in Kenya market is still attractive and the capital gains tax is lowest in other East Africa Countries such as Rwanda where the rate is 30%. As such, the Kenyan real estate market still remains attractive by locals and foreigners willing to invest in real estate.<\/p>\n\n\n\n In conclusion, the government imposes this tax because capital gains represent earned income, and taxation typically applies to income. Additionally, capital gains taxes can help to promote fairness in the tax system by ensuring that those who have more income or wealth pay a larger share of taxes.<\/p>\n","protected":false},"excerpt":{"rendered":" Capital gains tax is imposed on the profit made from the sale of a capital asset such as a stock, bond or real estate property. The calculation is made from the sale price with few deductions made.<\/p>\n","protected":false},"author":2,"featured_media":24334,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[8],"tags":[288,289,292,291,290],"class_list":["post-24333","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estates","tag-capital-gains-tax","tag-capital-gains-tax-in-kenya","tag-capital-gains-tax-in-kisumu","tag-capital-gains-tax-in-mombasa","tag-capital-gains-tax-in-nairobi"],"rttpg_featured_image_url":{"full":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax..jpg",640,427,false],"landscape":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax..jpg",640,427,false],"portraits":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax..jpg",640,427,false],"thumbnail":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax.-150x150.jpg",150,150,true],"medium":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax.-300x200.jpg",300,200,true],"large":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax..jpg",640,427,false],"1536x1536":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax..jpg",640,427,false],"2048x2048":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax..jpg",640,427,false],"bizberg_medium":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax.-300x300.jpg",300,300,true],"bizberg_gallery":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax.-500x400.jpg",500,400,true],"bizberg_blog_list":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax.-368x240.jpg",368,240,true],"bizberg_detail_image":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax.-640x400.jpg",640,400,true],"bizberg_detail_image_no_sidebar":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax.-640x400.jpg",640,400,true],"bizberg_portfolio_homepage":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax.-600x400.jpg",600,400,true],"bizberg_blog_list_no_sidebar_1":["https:\/\/www.usernameproperties.com\/blog\/wp-content\/uploads\/2023\/01\/What-You-Need-to-Know-About-Capital-Gains-Tax.-220x190.jpg",220,190,true]},"rttpg_author":{"display_name":"username","author_link":"https:\/\/www.usernameproperties.com\/blog\/author\/username\/"},"rttpg_comment":0,"rttpg_category":"Real Estates<\/a>","rttpg_excerpt":"Capital gains tax is imposed on the profit made from the sale of a capital asset such as a stock, bond or real estate property. The calculation is made from the sale price with few deductions made.","_links":{"self":[{"href":"https:\/\/www.usernameproperties.com\/blog\/wp-json\/wp\/v2\/posts\/24333","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.usernameproperties.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.usernameproperties.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.usernameproperties.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.usernameproperties.com\/blog\/wp-json\/wp\/v2\/comments?post=24333"}],"version-history":[{"count":0,"href":"https:\/\/www.usernameproperties.com\/blog\/wp-json\/wp\/v2\/posts\/24333\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.usernameproperties.com\/blog\/wp-json\/wp\/v2\/media\/24334"}],"wp:attachment":[{"href":"https:\/\/www.usernameproperties.com\/blog\/wp-json\/wp\/v2\/media?parent=24333"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.usernameproperties.com\/blog\/wp-json\/wp\/v2\/categories?post=24333"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.usernameproperties.com\/blog\/wp-json\/wp\/v2\/tags?post=24333"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Net<\/strong> gain<\/strong> <\/h4>\n\n\n\n
Transfer value<\/strong><\/h4>\n\n\n\n
Incidental costs on transfer<\/strong><\/h4>\n\n\n\n
Adjusted cost<\/strong><\/h4>\n\n\n\n
Exemptions in the capital gains tax<\/h2>\n\n\n\n
What is meant by a property transfer?<\/h2>\n\n\n\n
How Capital Gains Tax is paid<\/h2>\n\n\n\n
The possible impact of Capital Gains Tax on Real Estate<\/h2>\n\n\n\n
CONCLUSION<\/h3>\n\n\n\n