When you sell property, shares, or other capital assets in Kenya for more than you paid for them, the profit you make is subject to capital gains tax (CGT). Kenya reintroduced CGT in 2015 after a long period during which it was suspended, and it now applies to a wide range of asset disposals by both individuals and companies.

Capital gains tax catches many sellers by surprise, particularly those who have owned property for many years and are selling at significantly higher values than their original purchase price, and those disposing of shares in Kenyan companies as part of business restructuring or investment exits. Not accounting for CGT in a transaction can result in unexpected tax liabilities, penalties, and interest charges from KRA.

This guide explains how CGT works in Kenya, what rate applies, how to calculate your taxable gain, what exemptions are available, how to declare and pay the tax on iTax, and what the consequences are of failing to account for it correctly.

Related article: Conveyancing in Kenya: A Guide to Buying and Selling Property

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What Is Capital Gains Tax in Kenya?

Capital gains tax is a tax on the gain realized when a person disposes of certain assets at a price higher than the acquisition cost. It is governed by the Income Tax Act (Cap 470), which treats capital gains as a separate category of income subject to its own rules and rate.

Kenya reintroduced CGT in January 2015 after it had been suspended since 1985. The reintroduction was part of a broader effort to broaden the tax base and bring property transactions fully into the tax net. The CGT regime has since been amended several times, most significantly in terms of the applicable rate, which has changed more than once since reintroduction.

CGT in Kenya applies to both individuals and companies, to residents and non-residents, and to a broad range of assets including land, buildings, shares in private companies, and other investment assets. It is separate from the income tax that applies to regular trading income, and it is also separate from the rental income tax that applies to rental receipts.

Related article: Rental Income Tax in Kenya: What Landlords Need to Know

Related article: Corporate Income Tax in Kenya: A Complete Guide for Companies 

The Capital Gains Tax Rate in Kenya

The current CGT rate in Kenya is 15% of the net gain realized on the disposal of a taxable asset. This rate applies to both individuals and companies, to residents and non-residents alike.

A worked example: if you purchased land in Nairobi for KSh 5 million and sell it for KSh 12 million, the gross gain is KSh 7 million. After deducting allowable costs (acquisition costs, legal fees, improvement costs, and incidental disposal costs), the net gain may be reduced. Assuming net gain of KSh 6.5 million after deductions, CGT would be 15% of KSh 6.5 million, which equals KSh 975,000.

Which Assets Attract Capital Gains Tax in Kenya

Not every asset sale gives rise to CGT. The following assets are within the CGT net in Kenya:

Assets used in a business as trading stock - goods bought and sold in the ordinary course of trade - are generally not subject to CGT because the profits from their sale are taxed as ordinary income. The distinction between a capital asset and a trading asset can be important in disputes with KRA, particularly for property developers who may argue that properties disposed of are trading stock rather than capital assets. 

How to Calculate Your Capital Gain in Kenya

The net gain subject to CGT is calculated as follows:

Gross gain = Disposal proceeds minus Original acquisition cost

Net gain = Gross gain minus Allowable deductions

CGT = 15% multiplied by Net gain 

Disposal Proceeds

The disposal proceeds are the consideration received for the asset - the sale price. Where an asset is transferred below market value, for example as a gift or between connected persons, KRA may substitute market value for the actual consideration in calculating the gain. 

Original Acquisition Cost

The acquisition cost is what you originally paid for the asset, including all incidental costs of acquisition such as legal fees, stamp duty paid on purchase, and survey fees. For assets acquired before CGT was reintroduced in 2015, the market value of the asset as at the date of reintroduction may be used as the base cost in some circumstances, though this is a technical area where professional advice is important. 

Allowable Deductions

The following costs can be deducted in calculating the net gain:

-        Costs of acquisition - legal fees, stamp duty, survey fees, brokerage commissions paid when originally buying the asset

-        Costs of improvement - capital expenditure incurred on improving or enhancing the asset that is reflected in its value at disposal (routine maintenance is not deductible)

-        Costs of disposal - legal fees, agency commissions, advertising costs, and other costs directly incurred in selling the asset

-        Indexation allowance - in some circumstances an adjustment for inflation may be available, though the rules on this have changed over the years and professional advice is needed to confirm what applies to a specific asset

Exemptions From Capital Gains Tax in Kenya

Several categories of disposal are exempt from CGT or qualify for special treatment:

Principal Private Residence Exemption

A gain on the disposal of a dwelling house that has been occupied as the seller's principal private residence throughout the period of ownership is exempt from CGT. To qualify, the property must have been your main home - not a rental property, a second home, or a property used for business purposes. Where the property has been used partly as a residence and partly for another purpose, only the residential portion of the gain qualifies for the exemption. 

Transfer Between Spouses

Transfers of assets between spouses are generally exempt from CGT, provided the transfer is not in contemplation of divorce or separation. This exemption allows married couples to restructure asset ownership between themselves without triggering a CGT charge. 

Transfers on Death

The transfer of assets on death is not treated as a disposal for CGT purposes. Assets passing to beneficiaries through a deceased estate do not trigger CGT at the point of transfer, though the beneficiary will be subject to CGT when they subsequently dispose of the asset. 

Listed Shares

Gains on the disposal of shares listed on the Nairobi Securities Exchange are currently exempt from CGT. This exemption was introduced to encourage investment through the exchange and to support the development of Kenya's capital markets. 

Small Gains

Where the total consideration on a disposal does not exceed a prescribed threshold, the gain may be exempt or subject to simplified rules. The specific thresholds are set in the Income Tax Act and have been adjusted over time.

How to Declare and Pay Capital Gains Tax on iTax

Who Is Responsible for Paying

The responsibility for declaring and paying CGT sits with the person or company making the disposal - the seller or transferor. In some transactions, particularly property sales, the buyer may be required to withhold a portion of the purchase price and remit it to KRA on the seller's behalf as a withholding tax mechanism. Where withholding applies, the amount withheld is credited against the seller's final CGT liability. 

The CGT Declaration Process on iTax

CGT is declared and paid through the iTax portal. The key steps are:

1.     Log in to iTax using the seller's KRA PIN and password.

2.     Navigate to Returns and select File Return. Choose Capital Gains Tax from the return type options.

3.     Complete the CGT return with full details of the disposal: description of the asset, date of acquisition, acquisition cost and allowable acquisition expenses, date of disposal, disposal proceeds, allowable disposal costs, and the resulting net gain.

4.     The system calculates the CGT at 15% of the net gain declared.

5.     Submit the return and generate a payment slip for the CGT due.

6.     Pay the CGT via M-Pesa Paybill 572572 or at any KRA-approved bank. 

Timing of CGT Payment

CGT is due within 30 days of the date of the disposal. Where property is involved, the date of disposal is generally the date of transfer or the date the agreement for sale becomes unconditional, whichever is earlier. Missing the 30-day payment window attracts interest and penalties on the outstanding amount. 

Related article: How to File KRA Returns in Kenya: Step-by-Step Guide 

CGT on Property Sales: What Conveyancing Lawyers and Buyers Need to Know

In a property sale, CGT is the seller's liability but it has important implications for how the transaction is structured and the timing of payment:

CGT and Stamp Duty Are Separate

Stamp duty, which is paid by the buyer at 4% of the property value in a municipality, is entirely separate from CGT, which is the seller's tax on the gain. Both apply to the same transaction but are paid by different parties. Buyers sometimes assume that paying stamp duty covers their own CGT exposure - it does not. A buyer who is also disposing of assets in the same period may have their own separate CGT obligations. 

CGT Clearance and Completion

Some buyers and their lawyers require evidence that the seller has settled their CGT liability before completing a property purchase, particularly in larger transactions. While there is no formal CGT clearance certificate in the way that a Tax Compliance Certificate evidences general KRA compliance, KRA's records of a seller's outstanding liabilities can be checked. A seller who has not declared or paid CGT on a previous disposal may have an outstanding liability that could complicate subsequent transactions. 

Property Developers and CGT

A property developer who builds and sells properties in the ordinary course of their business typically pays income tax on the profits from each sale rather than CGT, because the properties are trading stock rather than capital assets. However, where a developer retains a property as an investment for a period before selling, the classification of the gain - capital or income - becomes a contested area that frequently gives rise to disputes with KRA. 

Related article: Conveyancing in Kenya: A Guide to Buying and Selling Property

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Related: Conveyancing Practice Area 

CGT on Share Disposals in Kenya

When shareholders sell shares in a private Kenyan company, the gain is subject to CGT at 15%. This applies whether the seller is an individual or a corporate entity. Share disposals in the context of company acquisitions, management buyouts, investor exits, and corporate restructuring all potentially attract CGT, and the tax implications should be factored into deal pricing and structuring.

Calculating the Gain on a Share Sale

The gain on a share sale is the difference between the sale price per share and the original subscription or acquisition price per share, multiplied by the number of shares sold. Where shares have been acquired at different prices at different times, a first-in-first-out (FIFO) or weighted average cost basis may be used to determine the acquisition cost of the shares being sold. 

Share Sales Involving Non-Residents

Where a non-resident disposes of shares in a Kenyan company, the Kenyan CGT applies to the gain on the Kenyan shares regardless of where the seller is based. This is an important consideration for foreign investors exiting Kenyan investments, as well as for indirect transfers where a foreign holding company holding Kenyan assets is sold.

Related article: Company Registration in Kenya: Complete Guide

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Consequences of Not Paying Capital Gains Tax in Kenya

Failing to declare and pay CGT by the 30-day deadline attracts significant consequences under the Tax Procedures Act:

-        Late payment interest - interest at 2% per month compounds on any unpaid CGT from the date it was due. On a significant CGT liability, this interest can accumulate to a substantial additional amount within months.

-        Failure to file penalty - where a CGT return was not filed at all, a penalty of 5% of the tax due or KSh 20,000, whichever is higher, applies per month of non-filing.

-        KRA audit and additional assessment - KRA has visibility of property transfers through the lands registry and of share transfers through company filings. Where CGT has not been declared on a disposal that KRA can trace, an additional assessment for the undeclared tax plus penalties and interest can follow, sometimes years after the original transaction.

-        Difficulty with future transactions - a seller with outstanding CGT liabilities may find that KRA flags the liability during due diligence on a subsequent transaction, creating complications that could delay or prevent completion.

Related article: KRA Tax Penalties in Kenya: How to Avoid and Appeal Them

Related article: How to Object to a KRA Tax Assessment in Kenya 

Frequently Asked Questions

What is the capital gains tax rate in Kenya?

The capital gains tax rate in Kenya is 15% of the net gain realized on the disposal of a capital asset. This rate applies to both individuals and companies, and to both residents and non-residents. It applies to gains on immovable property, shares in private companies, and other investment assets. Listed shares on the Nairobi Securities Exchange are currently exempt from CGT.

Do I pay capital gains tax when I sell my house in Kenya?

It depends on whether the property qualifies for the principal private residence exemption. If the property has been your main home throughout the period of ownership, the gain on disposal is exempt from CGT. If the property is a rental property, a second home, or has been used partly for business, CGT at 15% of the net gain applies to the non-exempt portion. Where the exemption is available, it must still be declared on iTax even if no tax is ultimately due.

When do I have to pay capital gains tax in Kenya?

CGT is due within 30 days of the date of disposal of the asset. For property, the date of disposal is generally the date of transfer or the date the sale agreement becomes unconditional, whichever is earlier. Missing the 30-day deadline attracts interest at 2% per month on the outstanding amount, compounding from the due date.

How do I pay capital gains tax in Kenya?

CGT is declared and paid through the iTax portal at itax.kra.go.ke. Log in using your KRA PIN, navigate to Returns, select File Return, choose Capital Gains Tax, complete the return with details of the disposal and the gain calculation, submit, and pay the resulting liability via M-Pesa Paybill 572572 or at a KRA-approved bank within 30 days of the disposal.

Do companies pay capital gains tax in Kenya?

Yes. Companies pay CGT at the same 15% rate as individuals on gains from the disposal of capital assets including land, buildings, shares in other companies, and other investment assets. Where a company sells assets that form part of its trading stock rather than capital assets, the profit is subject to corporation income tax rather than CGT. The distinction can be important and is sometimes disputed with KRA.

Related article: Corporate Income Tax in Kenya: A Complete Guide for Companies

Is there capital gains tax on shares in Kenya?

CGT at 15% applies to gains on the disposal of shares in private (unlisted) Kenyan companies. Gains on the sale of shares listed on the Nairobi Securities Exchange are currently exempt from CGT. Where a non-resident sells shares in a Kenyan company, Kenyan CGT applies to the gain regardless of where the seller is resident.

What costs can I deduct from my capital gain in Kenya?

Allowable deductions from the gross gain include the original acquisition cost of the asset, incidental costs of acquisition (legal fees, stamp duty paid, survey fees), the cost of any capital improvements made to the asset, and the costs of disposal (legal fees, agency commissions, advertising). Routine maintenance and operating costs are not deductible in computing the gain. 

Need Help With Capital Gains Tax on a Property or Share Sale?

Whether you are selling property in Nairobi, disposing of shares in a Kenyan company, or dealing with a KRA assessment on an undeclared past disposal, Mutea Muthuri & Associates Advocates can help you calculate your CGT liability, file the correct return, and protect your position in any dispute with KRA. Our tax team works with clients across Nairobi, Meru, and Kenol.

Contact us today on +254 720 800 094 or visit our contact page to speak with a tax lawyer in Nairobi.