WHAT IS CAPITAL GAINS TAX?

INTRODUCTION

Capital Gains Tax (referred to as CGT) is tax imposed on the net profit earned from the sale or transfer of any capital assets such as stocks, bonds, real estate, shares or other investments.

Capital Gains Tax had been suspended in 1985 but was reintroduced in Kenya with effect from 1^st January, 2015 through the Finance Act, 2014. It is worth noting that the tax applies whether or not the property was acquired before 1st January 2015.

What is the current CGT rate?

The CGT rate was increased from 5% of the net gain to 15% of the net gain, through the Finance Act 2022 effective 1^st January 2023.

It is only payable when there is gain which accrues to a person on the transfer of any property and not when there is a loss or no gain.

Who is required to file CGT?

CGT is declared and paid by the transferor of the property upon transfer of the property. Failure to do so attracts a penalty.

Transactions subject to CGT

CGT is payable when a transfer takes place.

A transfer occurs:

Where property is sold, exchanged, conveyed or otherwise disposed of in any manner whatever (including by way of gift), whether or not for consideration; or
On the occasion of the loss, destruction or extinction of property whether or not a sum by way of compensation or otherwise, or under a policy of insurance, is received in respect of the loss, destruction or extinction of the property unless such sum is utilized to reinstate the property in essentially the same form and in the same place within one year of the loss, destruction or extinction of the property or within a longer period of time approved by the Commissioner; or
On the abandonment, surrender, cancellation or forfeiture of, or the expiration of substantially all rights to, property, including the surrender of shares or debentures on the dissolution of a company.

Transactions that are exempted from paying CGT

This is provided for under Paragraph 6 and 36 of the First Schedule of the Income Tax Act. They include:

the transfer of property for the purpose only of securing a debt or a loan, or on any transfer by a creditor for the purpose only of returning property used as security for a debt or a loan;
issuance by a company of its own shares or debentures;
vesting the property of a deceased person in a personal representative;
transfer of a deceased person’s property by a personal representative in the course of the administration of the estate of the deceased person;
Vesting of company property to a liquidator or receiver by an order of court;
Vesting of property in the official receiver or trustee in bankruptcy;
transfer by a trustee of property, which is shown to the satisfaction of the Commissioner to be subject to a trust, to a beneficiary on his becoming absolutely entitled thereto;
Transfer of an asset between spouses or former spouses or their immediate family;
Sale of a private residence if the individual owner has occupied the residence continuously for the three-year period immediately prior to the transfer concerned.
Transfer of property by an individual where:
i). The transfer value is not more than 3 million shillings;
ii). The property is an agricultural property having an area of less than 50 acres where such property is situated outside a municipality, gazetted township or an area that is declared by the Minister,by notice in the Gazette, to be an urban area.

How to calculate CGT

CAPITAL GAINS TAX = 15% * Net Profit

How do I pay for Capital Gains Tax?

CGT is due on or before transfer of property but not later than the 20th day after the transfer. The payment should be initiated online via the iTax system through the seller’s account.

The modes of payment include cash, cheque or RTGS. After initiating payment, one will receive a payment slip which should be presented at any KRA appointed bank with the due tax to complete payment.

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