The Ultimate Guide to Capital Gains Tax (CGT) in Kenya: Rates, Calculation, Exemptions, and Compliance

Understanding Kenya’s Capital Gains Tax (CGT) regime is crucial for individuals and businesses involved in property and share transactions. This comprehensive guide explains the legal framework, calculation methods, compliance procedures, and key strategic considerations based on the latest laws and judicial precedents.

1. What is Capital Gains Tax?

Capital Gains Tax (CGT) is a final tax levied on the profit or “gain” realized from the transfer of property situated in Kenya.

• Legal Basis: Charged under Section 3(2)(f) of the Income Tax Act and computed according to the Eighth Schedule to the Act.
• Taxable Event: The gain is realized upon the “transfer” of a property. “Transfer” is broadly defined to include sale, exchange, gift, disposal, or loss/destruction of property.
• Who Pays: The tax liability falls on the seller or transfer or of the property.
• Current Rate: 15%of the net gain, effective from 1 January 2023 (increased from the previous rate of 5%).

2. What Property is Subject to CGT?

CGT applies to the transfer of:

• Land and Buildings: Includes land situated in Kenya, buildings, permanent structures, and any right or interest over such land.
• Marketable Securities: Primarily shares in private companies not listed on the Nairobi Securities Exchange (NSE). Shares listed on the NSE are generally exempt.
• Other Interests: Any interest deriving more than 20% of its value directly or indirectly from immovable property situated in Kenya.

3. How to Calculate CGT: The Core Formula

The fundamental formula for calculating CGT in Kenya is:

CGT Payable = 15% × (Net Transfer Value − Adjusted Cost)

To apply this correctly, each component must be understood.

1. Net Transfer Value

This is the total consideration received from the transfer, minus the costs directly associated with making the sale.

Included in Transfer Value	Subtracted (Incidental Transfer Costs)
• Sale price or agreed consideration. • Compensation or insurance proceeds for loss/destruction.	• Agent’s commission or brokerage fees. • Legal fees for the sale agreement. • Advertising costs to find a buyer. • Valuation fees for the sale.

1. Adjusted Cost

This is the total cost of acquiring the property and any qualifying subsequent expenditures.

Cost Component	Description & Examples
1. Acquisition Cost	The original purchase price or construction cost.
2. Incidental Acquisition Costs	Costs to acquire the property: legal fees, stamp duty, and valuation fees at purchase.
3. Capital Improvements	Expenditure that enhances or preserves the property’s value (e.g., putting up a new building, major permanent renovations, fencing, drainage).
4. Title Costs	Costs of defending or perfecting legal title to the property.

> Special Case: Inherited Property
The transfer of property to a beneficiary upon death is exempt from CGT. However, if the beneficiary later sells the property, CGT applies. Crucially, the Adjusted Cost for the beneficiary is the fair market value of the property at the date of inheritance, not a nil cost. A professional valuation report is essential evidence for this.

4. The Critical “Tax Point”: When is CGT Due and Payable?

Determining the correct “tax point” is essential, as it fixes the applicable tax rate and due date. This has been a major point of litigation.

• Definition of Transfer: A transfer occurs when property is sold, exchanged, conveyed, or otherwise disposed of. Recent judicial decisions emphasize that, for legal purposes, a transfer is often deemed complete upon the registration of the transfer instrument or the fulfillment of all legal conditions precedent.
• Due Date for Payment: CGT must be paid by the earlier of these two dates:
  1. The date the seller receives the full purchase price; or
  2. The date of registration of the transfer.

⚠️ Judicial Insight: The case of Bhatt v Commissioner (2025) established that for transactions requiring external regulatory approvals (e.g., transfer of bank shares needing Central Bank approval), the transfer is only deemed complete for CGT purposes after those approvals are granted. This can legally shift the tax point into a different tax period, potentially subjecting the gain to a new tax rate.

5. Complete Guide to CGT Exemptions

Not all disposals trigger CGT. The table below consolidates the key exemptions from the Eighth Schedule to the Income Tax Act and related legislation.

Category of Exemption	Specific Exempt Transactions/Properties	Key Conditions & Notes
Family & Personal Transfers	Transfer of assets between spouses.	Also applies to former spouses as part of a divorce or separation agreement.
	Transfer of assets to immediate family (children).
	Transfer to a company where the transferor and immediate family hold 100% shareholding.
	Transfer of a private residence occupied by the individual owner.	The owner must have occupied it continuously for the three years immediately before the transfer.
Specific Asset Types	Transfer of listed securities (shares on the NSE).	Applies to shares traded on an exchange licensed by the Capital Markets Authority.
	Agricultural land transferred by an individual.	Land must be under 50 acres and located outside a gazetted municipality, township, or urban area.
	Land transferred where the transfer value is Ksh 3 million or less.	Applies only to transfers of land.
Corporate & Restructuring	Issuance by a company of its own shares and debentures.	This is the creation of new shares, not a transfer of existing ones.
	Internal corporate restructuring within a group.	Must not involve a transfer to a third party, and the group must have existed for at least 24 months.
	A broader corporate restructuring (incorporation, merger, etc.) was approved as being in the public interest.	Requires approval from the Cabinet Secretary.
Estates, Trusts & Security	Transfer by a personal representative to a beneficiary during estate administration (inheritance).
	Transfer or sale of property to administer a deceased person’s estate.	Must be completed within 2 years of death (extendable by the Commissioner).
	Transfer of immovable property into a registered family trust.	The family trust must be duly registered.
	Transfer of property solely to secure or release a debt or loan (e.g., creating or discharging a charge/mortgage).	The transaction must be for security purposes only.
Other Exemptions	Gains that are already taxed as business income under another provision of the Act.	Prevents double taxation (e.g., for a property dealer).
	Property transferred due to compulsory acquisition by the government.

6. Step-by-Step Compliance Procedure on iTax

Non-compliance attracts a 5% penalty plus 1% monthly interest on the unpaid tax. Follow this process to comply:

Step 1: Gather Required Documentation
Before filing, compile all supporting documents:

• Sale/Purchase Agreement.
• Copy of the Title Deed.
• Receipts for all claimed costs (legal fees, agency fees, stamp duty, improvement costs).
• Professional valuation report (especially important for inherited property or related-party transactions).
• Evidence of regulatory approvals (if applicable, e.g., from CBK).

Step 2: File and Pay on the iTax Portal

1. Log in to your KRA iTax
2. Navigate to “Payments” > “Payment Registration.”
3. Select “Income Tax” as the Tax Head and “Capital Gains Tax” as the Sub Head.
4. Enter the accurate details of the transaction, net gain, and computed tax.
5. Generate the assessment and complete the payment via integrated channels (e.g., bank, M-Pesa).

Key Strategic Considerations & Common Pitfalls

• Anti-Avoidance Rule (5-Year Look-Back): The Finance Act 2023 introduced Paragraph 8(4A)to the Eighth Schedule. If property is transferred in a tax-exempt transaction (e.g., as a gift to family) and is subsequently sold in a taxable transaction within five years, the CGT on the second sale is calculated using the original owner’s adjusted cost, not the value at the time of the gift. This prevents abuse of exemptions.
• Burden of Proof in Disputes: In any dispute with the Kenya Revenue Authority (KRA), the taxpayer bears the burden of proving that an assessment is incorrect. The cases of Dhanjal v Commissioner (2024) and Commissioner v Shah & 2 Others highlight that providing credible, professional valuation reports for inherited property is essential to discharge this burden.
• Proactive Transaction Planning: The starkly different outcomes in Bhatt (2025)and Haria (2025) demonstrate that timing is critical. Proactively managing when the purchase price is received, when registration occurs, and understanding the impact of conditional approvals can significantly alter your tax liability. Always consider the “tax point” in your transaction timeline.
• Seek Professional Advice: CGT law is complex and intersects with other areas like estate planning, corporate law, and sector-specific regulations (e.g., banking). For significant transactions, consulting with a tax advisor or advocate is highly recommended to ensure compliance and optimal planning.

Disclaimer: This guide is for informational purposes only and does not constitute legal or professional tax advice. Tax laws are subject to change. For decisions regarding specific transactions, consult a qualified tax professional or refer directly to the Kenya Revenue Authority (KRA).