Who Pays Capital Gains Tax in Kenya?

Introduction

Taxes and property in Kenya always spark strong emotions. One of the most confusing ones is Capital Gains Tax (CGT). Sellers often ask: “Am I supposed to pay it? Can the buyer pay? What if the property is inherited?”

This guide unpacks who actually pays CGT in Kenya, how it is calculated, exemptions, compliance steps, and examples grounded in the Kenyan real estate market. Whether you’re selling a plot in Kitengela, an apartment in Kilimani, or shares in a Nairobi-based company, understanding your CGT obligations can save you unexpected penalties — and even failed transfers at Ardhi House.

H2: What is Capital Gains Tax in Kenya?

H3: Definition

Capital Gains Tax is charged on the profit (gain) made when you dispose of a property or investment. It’s not about the whole sale value — only the net gain (sale price minus purchase price and allowable expenses).

In Kenya, CGT is regulated under the Income Tax Act, Eighth Schedule. It was suspended in 1985 and reintroduced in 2015.

H3: What Assets Attract CGT?

Land and buildings in Kenya

Shares in Kenyan companies (directly or indirectly linked to real estate)

Rights over property (e.g., long leases, mining rights)

Business assets like goodwill in some cases

Excluded assets include vehicles, household goods, and personal items.

H2: So, Who Pays Capital Gains Tax in Kenya?

H3: The Seller (Transferor)

The seller — legally referred to as the transferor — is responsible for paying CGT. This applies whether the disposal is by sale, gift, exchange, or transfer.

If you sell a plot in Ruiru: you pay CGT.

If you gift your daughter land in Nakuru: you (the giver) pay CGT.

If you exchange property in Karen for one in Mombasa: the one giving up property pays CGT.

H3: Buyers Are Not Directly Liable

The buyer does not pay CGT. Their main responsibility is paying stamp duty. However, transactions cannot be registered without proof that the seller has paid or been exempted from CGT.

H3: Companies and Non-Residents

Companies selling land, buildings, or shares in Kenya must also pay CGT.

Non-residents selling Kenyan assets are still liable, and the Kenya Revenue Authority (KRA) can demand tax clearance before allowing transfer.

H2: Current Rate of Capital Gains Tax

As of 2025:

CGT is charged at 15% of the net gain.

It’s a final tax (you don’t add it to income tax).

Example table of changes in CGT rates:

Year Rate Note

2015–2022 5% Flat final tax

2023–Present 15% Increased by Finance Act 2022

H2: How to Calculate Capital Gains Tax

H3: Formula

Net Gain = Transfer Value – (Adjusted Cost + Incidental Expenses)

Transfer Value: Sale price or value received

Adjusted Cost: Original purchase price + cost of improvements

Incidental Costs: Legal fees, valuation fees, agent commissions

CGT = 15% of Net Gain

H3: Worked Example

Bought land in 2018 for KSh 3,000,000

Spent KSh 500,000 on improvements

Legal/valuation costs: KSh 200,000

Sold in 2025 for KSh 8,000,000

Net Gain = 8,000,000 – (3,000,000 + 500,000 + 200,000) = 4,300,000

CGT = 15% × 4,300,000 = KSh 645,000

H2: When is CGT Paid?

Upon transfer registration at Lands Office

Or when the seller receives full payment, whichever comes first

Payment is filed via CGT1 form on iTax within 20 days of transfer

H2: Exemptions — Who Does Not Pay CGT?

Not every transfer attracts CGT. Key exemptions include:

Sale of property worth less than KSh 3 million

Transfer of agricultural land less than 50 acres outside municipalities

Transfer of family home occupied for at least 3 years

Transfer between spouses or due to divorce/separation

Transfer to a registered family company

Inheritance: property passed to heirs is exempt at transfer stage (but CGT applies when heirs later sell)

H2: Real Estate Examples in Kenya

H3: Example 1 — Apartment Sale in Kilimani

Sale price: 20M

Purchase + improvements: 12M

Transfer costs: 1M

Net gain: 7M

CGT @15% = 1.05M (paid by seller)

H3: Example 2 — Gifting a Plot in Kitengela

A father gifts his son land. Legally, this is a “disposal.” Unless exempted (e.g., through spousal transfers), CGT is payable by the father.

H3: Example 3 — Sale of Inherited Land in Kisumu

Inherited property is exempt at transfer from deceased to heir. But when the heir later sells it, they must compute CGT based on the value at inheritance as acquisition cost.

H2: CGT vs Other Property Taxes in Kenya

Tax Who Pays When Due Rate

CGT Seller On transfer 15% of gain

Stamp Duty Buyer On registration 2–4% of property value

Rental Income Tax Landlord Monthly/quarterly 7.5% turnover tax or graduated rates

Withholding Tax (on rent/landlord fees) Tenant/agent At payment 10%

This distinction clears up the common mix-up between CGT and stamp duty.

H2: Compliance and Penalties

Late payment attracts penalties and interest.

Without proof of CGT payment, the Lands Office will not register the property transfer.

KRA audits can backdate liabilities if under-declared.

H2: Practical Tips for Sellers

Keep all receipts and agreements for purchase and improvements.

Engage a valuer to determine fair market value.

Apply for exemptions early (spousal, family home, small value).

Negotiate sales with CGT factored in, so you’re not blindsided.

H2: Frequently Asked Questions (FAQ)

Q: Can the buyer and seller agree that the buyer pays CGT?

A: The law places liability on the seller. Private agreements don’t shift liability in KRA’s eyes.

Q: What if I make a loss when selling?

A: If there’s no gain, CGT is nil. However, capital losses cannot be carried forward.

Q: Do foreigners pay CGT in Kenya?

A: Yes, if they dispose of property or shares in Kenya.

Q: Is CGT deductible from rental income tax?

A: No. CGT is final and separate from rental or income tax.

H2: Conclusion

So, who pays capital gains tax in Kenya?

The answer is clear: the seller or transferor. Whether it’s an individual offloading a plot in Ruiru, a company disposing of shares tied to Nairobi real estate, or a non-resident selling Kenyan assets, the one transferring pays.

Understanding exemptions, rates, and timing ensures smooth transactions — and avoids KRA headaches.

In Kenya’s real estate market, where margins can be tight and compliance strict, knowing your CGT obligations isn’t just about taxes. It’s about closing deals without disruption.