IT 8
Capital gains tax
1Scope and legal basis
Section 3(2)(f) of the Income Tax Act charges gains accruing on the transfer of property, computed under the Eighth Schedule. Capital gains tax (CGT) was suspended from 1985 and reintroduced from 1 January 2015 at 5%; the Finance Act 2022 raised the rate to 15% from 1 January 2023, and the Tax Laws (Amendment) Act 2024 added a 5% rate for investors certified by the Nairobi International Financial Centre Authority who invest at least KES 3 billion and hold the shares for five years. The Finance Act 2026 extends the charge to a non-resident's gain on shares that derive their value from Kenya or whose transfer changes the membership of a group, and exempts transfers of property into a registered real estate investment trust. The tax is on the transferor, on the gain, at a flat rate, and is a final tax outside total income; gains on marketable securities listed on a Kenyan exchange are exempt, and land is the main object of the charge in practice.
2Key definitions
3Charge, computation and rates
Computing the gain
Sale of a plot in Kitengela
Bought in March 2016 for KES 3,000,000 with legal fees 60,000 and stamp duty 120,000 (paid by the buyer, so part of cost). Boundary wall built in 2019 for 400,000. Sold in August 2026 for KES 9,500,000; agent's commission 285,000, legal fees on sale 95,000.
Transfer value: 9,500,000 - 285,000 - 95,000 = 9,120,000. Adjusted cost: 3,000,000 + 60,000 + 120,000 + 400,000 = 3,580,000. Gain: 9,120,000 - 3,580,000 = KES 5,540,000.
CGT at 15%: KES 831,000, declared on iTax and paid by the earlier of receipt of the full purchase price and registration of the transfer at the lands registry. The buyer separately pays stamp duty at 4% of the value (urban) or 2% (rural).
The gain is not added to the seller's other income; the tax is final. No indexation for inflation is allowed, and the seller's own labour in building the wall is not a cost.
Rates and special cases
| Case | Treatment |
|---|---|
| Standard rate | 15% of the gain, a final tax |
| NIFCA-certified investor | 5% where at least KES 3 billion is invested in one or more Kenyan entities within two years and the shares are transferred within five years after the investment period, subject to the NIFC conditions |
| Shares in a company holding land | The charge is on the shares as investment shares; a transfer of 100% of the shares is a transfer of the shares, not of the land, so stamp duty is on the shares at 1%, but anti-avoidance treats a transfer of a company whose value is more than 20% from Kenyan land as within the charge for non-residents (Finance Act 2026) |
| Property dealers and developers | Gains on land and buildings held as trading stock are business income at the person's normal rate, not CGT; the Commissioner looks at frequency, intention and development activity (badges of trade) |
| Instalment sales and options | The transfer is when the contract becomes unconditional; the whole gain is taxed when the tax point (full payment or registration) arrives, not per instalment |
| Compulsory acquisition and insurance compensation | Compensation is the transfer value; compulsory acquisition by the government is exempt |
| Loss on a transfer | Deductible only from gains on other transfers in the same or later years; cannot reduce business or employment income |
| Depreciable business assets | Machinery outside the charge; buildings: the balancing adjustment on allowances is income tax, and the excess of proceeds over cost is the capital gain |
Exemptions (Eighth Schedule paragraph 36 and the First Schedule)
- Securities listed on any securities exchange licensed by the Capital Markets Authority (the transfer is instead subject to no tax; stamp duty on quoted shares is exempt too).
- Transfer of a private residence occupied by the transferor for at least three years before the transfer; transfer of agricultural land of less than fifty acres outside a municipality, gazetted township or urban area; land transferred for less than KES 3 million.
- Transfer of property on the death of the owner (inheritance), to a spouse or former spouse on divorce, between spouses, or to immediate family (a transfer to a child is a gift at market value, but the specific family exemptions apply), and transfers of property into a registered family trust.
- Transfers within a group of companies for a legitimate business restructuring where the group has been in existence for at least 24 months and the transfer is not to a third party within that structure; transfers under a change in the law, a government directive, or in the public interest with the Cabinet Secretary's approval; and, from 2026, transfers of property to a registered REIT.
- Transfer of machinery and vehicles (machinery is not 'property' for CGT), and of shares by an SEZ enterprise, and property transferred by a person with a certificate of exemption for a disability.
- Transactions subject to income tax under other provisions (trading stock, deemed transfers under the Ninth Schedule for extractives, which pay 20% on the gain as natural resource income).
4Compliance: returns, payment and penalties
The transferor files a CGT return (the CGT 1 form on iTax) with the sale agreement, valuation where relevant, evidence of cost and incidental expenses, and pays the tax by the earlier of the date the transferor receives the full purchase price and the date of registration of the transfer; from 2023 the lands registry and the Business Registration Service require a CGT acknowledgement slip or exemption before registering a land or share transfer, so the tax is in practice paid before completion. A gift or transfer between related parties is declared at market value with a valuation. Late payment attracts the 5% penalty and 1% a month interest, and an understated transfer value is assessed with the tax shortfall penalty. Exempt transfers are still declared, with the exemption claimed on the return. The buyer pays stamp duty on the instrument (4% urban, 2% rural land, 1% unquoted shares) within 30 days, and the two taxes are independent.
5Examinable focus
What KASNEB tests
Compute the gain: transfer value less incidental costs of sale, less adjusted cost (acquisition, incidental costs of purchase, enhancements, less allowances), tax at 15%, and state the payment date. Then apply the exemptions to a list of transfers (a family home lived in for four years, a gift to a daughter, a sale of NSE shares, a sale of unlisted shares, a group reorganisation, a plot sold for KES 2.5 million, inheritance) and say which are taxable and why. Distinguish CGT from income tax on a property dealer using the badges of trade, and from stamp duty (who pays, on what, at what rate). The NIFC 5% rate and the 2026 extension to non-resident share transfers are the current additions.