In this article, we explain the concept of Capital Gains Tax (CGT) and its significance for individuals involved in property transactions. CGT is a relatively new tax in Kenya that was reintroduced a few years ago by the Kenyan Revenue Authority as an effort to bolster tax revenue collection.
1. What is Capital Gains Tax (CGT)?
Capital Gains Tax is a tax levied on the profits earned from selling property or assets such as land or developed buildings. It applies to sellers who make gains in the transaction.
2. How is CGT Calculated?
The tax rate was increased from 5% to 15% of the profit made from selling property or assets, effective 1 January 2023. It is determined by subtracting the total purchase costs, including legal fees, subdivision expenses, fencing, and security expenses, from the selling price. For instance, if a property was purchased for 5 million Kenyan Shillings (assuming there were no additional costs) and sold for 8 million Kenyan Shillings, the net profit would be 3 million Kenyan Shillings. The seller would then pay 15% of this profit, which is 450,000 Kenyan Shillings, as CGT to the Kenyan Revenue Authority.