WHAT IS CAPITAL GAIN TAX IN THE REAL ESTATE INDUSTRY?
As a real estate investor, there are a few terminologies with which you are familiar. Say, “Capital Gain Tax”. Does that sound familiar? Let’s enlighten those that might not know what this really means or those that might have forgotten.
A capital gain is the difference between the acquisition price and the selling price of anything, including a capital item. It is the appreciation in the value of the item from the time it was bought to the time it was sold.
In a less complex way, this means if you bought a property for KES 800,000 in 2017 and you sell it for KES 1,000,000, the difference, which is KES 200,000, is what we call capital gain.
Capital gain tax is the tax applied to the capital gain. It is only applicable when the capital gain is positive. If you sold the property and the difference was negative, then this does not apply.
According to the Finance Act 2014, the capital gains tax rate in Kenya was 5% effective from January 1, 2015. However, Treasury Cabinet Secretary Henry Rotich announced in this year’s (2019) budget that the rate of the tax has been adjusted to 12.5%, which is more than double the tax obligation for those looking to sell a property.
Who is charged with capital gains tax?
The person (s) who transfers the property has the responsibility to account for capital gains tax. The person(s) completes the declaration forms, determines the capital gains tax and remits the tax to KRA.
Exemptions from Capital Gains Tax
- Income that is taxed elsewhere, as in the case of property dealers
- Issuance by a company of its own shares and debentures
- Transfer of property between spouses as part of divorce settlement
- A private residence if the individual owner has occupied the residence continuously for the three-year period immediately prior to the transfer.
- Transfer of land sales of less than Ksh 3 million.
- Disposal of property for the purpose of administering the estate of a deceased person
- Transfer of recognized retirement benefits scheme’s securities.
- Agricultural property having an area of less than 100 acres where that property is situated outside a municipality or urban area
- Transfer for loan or debt security.
How do I pay for Capital Gains Tax?
According to KRA, you can either pay in instalments, in advance or at the end of the accounting period. Payment should be initiated online via iTax. The modes of payment include cash, cheque, or Real Time Gross Settlement (RTGS).
After initiating payment, you will receive a payment slip. Present the payment slip at any KRA-appointed bank with the due tax to complete payment.
