A seller agrees a price, the buyer’s advocate sends the completion checklist, and one line reads: capital gains tax. Many sellers meet the tax for the first time at the point of sale, when the timetable leaves little room for surprises. Understanding what the tax covers, who pays it and when the payment is needed helps a seller plan the net proceeds and keeps registration on schedule.
Quick answer: capital gains tax is charged on the gain made on the transfer of property situated in Kenya, and the liability falls on the seller. The payment and the supporting return are made to the Kenya Revenue Authority, and the registry requires evidence of payment before the transfer is registered. The gain is broadly the transfer value less the acquisition cost, capital improvements and allowable incidental costs, subject to the detailed rules and any exemption that applies.
What capital gains tax covers
The charge applies to the transfer of property in Kenya, including land and buildings. It is imposed under the Income Tax Act, which is published by Kenya Law. The tax is not a tax on the whole sale price: it is a tax on the gain, calculated by comparing what the seller receives with the cost of acquiring and improving the property, together with the incidental expenditure the rules allow.
Capital gains tax is separate from stamp duty. Stamp duty is assessed on the transfer instrument and is normally the buyer’s cost, while capital gains tax is the seller’s liability on the gain. A completion timetable should treat them as two different workstreams with two different authorities, even though both must be resolved before the transfer is registered.
Who pays, and when
The transferor, meaning the seller, accounts for the tax. In practice the seller or the seller’s advisers prepare the computation, file the return and make payment to the Kenya Revenue Authority, and the buyer’s advocate will ask for evidence before lodgement because the registry will not register the transfer without it. The payment therefore belongs on the completion timetable from the day the sale agreement is signed, not in the final week.
Where the seller is a company, a trustee or a personal representative, the person who signs the return and the source of the payment should be identified early. A personal representative selling estate property, for example, needs to know that the liability is being met from the estate and that the estate’s records support the computation.
Computing the gain
The computation starts with the transfer value and deducts the allowable costs. The main categories are the acquisition cost, capital expenditure on improvements and the incidental costs of the sale that the rules permit. The detail matters: a receipt that does not identify the property or the work may not support a deduction, and an estimate without documents is unlikely to survive scrutiny.
| Item | What it does in the computation |
|---|---|
| Transfer value | The price or other consideration for the property |
| Acquisition cost | What the seller paid to acquire the property |
| Capital improvements | Qualifying expenditure that increased the value of the property |
| Incidental costs | Allowable costs connected with the acquisition or the sale, subject to the rules |
| Exemptions and reliefs | Any treatment the Act or the authority’s guidance provides for the specific transaction |
Exemptions and special cases
This summary is a guide to the structure of the computation, not a substitute for the rules. The treatment of inherited property, gifted property, part disposals, company reorganisations and non-resident sellers all depend on the Act and on current administrative guidance, and each should be checked before the computation is finalised.
Where a seller claims an exemption or a particular treatment, the claim should be documented before the return is filed. A position taken without evidence is difficult to defend later, and it can delay the registration if the authority raises a query during the completion window.
Records to gather
- The purchase documents showing the acquisition cost and the date of acquisition.
- Invoices, receipts and contracts for capital improvements, identified to the property.
- The sale agreement, the agreed price and the incidental costs of the sale.
- Any valuation obtained for the acquisition, the sale or the tax computation.
- Evidence supporting any exemption, relief or special treatment claimed.
- Correspondence with the tax authority and any acknowledgement of filing or payment.
Keep the records after completion as well as before it. A query can arise later, and the seller may need the same file to explain the computation for the transfer, for another property in the same portfolio, or for a tax residence question in the country where the seller lives.
Stamp duty, rates and clearances
Capital gains tax does not replace the other completion requirements. The buyer accounts for stamp duty on the transfer, and the State Department for Lands lists stamp duty assessment and exemption among its services. The seller should also clear county rates and land rent, because arrears attach to the land and the clearance certificates are needed before registration. A seller who has paid the capital gains tax but left rates outstanding has not made the property ready for transfer.
These obligations interact in time. The capital gains computation needs the sale documents, the stamp duty assessment needs the transfer instrument, and the clearances need the county and the lessor’s records. Starting all three early is usually faster than finishing the tax return first and then discovering that a clearance has expired.
Cost, timing and when to get advice
Beyond the tax itself, the seller should budget for the cost of the computation and the return, valuation fees where a valuation is needed, and the conveyancing costs of the transfer. Tax and adviser fees should be quoted in writing and separated from disbursements. Late filing or late payment can attract penalties and interest under the tax rules, so the dates should be diarised from the start.
Take advice before signing the sale agreement where the property was inherited or gifted, the seller is a company, trust or estate, the property is being sold in parts, the seller is not resident in Kenya, or the acquisition records are incomplete. The firm’s real estate and conveyancing practice in Nairobi coordinates the tax steps with the transfer, and it works alongside the guides on stamp duty pitfalls in Kenya and selling Kenyan property from abroad.
Primary sources
- Income Tax Act, Kenya Law.
- Kenya Revenue Authority: Capital Gains Tax FAQs.
- State Department for Lands and Physical Planning: services, including stamp duty assessment and land transfers.
This article is general information, not legal advice.
