As you embark on the journey of purchasing a property, it is crucial to be aware of the various taxes that may come into play. Understanding these tax obligations will help you plan your finances accordingly and avoid any surprises along the way. Here are the key taxes you should expect when buying a property:

Stamp Duty:

Stamp Duty is a tax levied during the sale and purchase of a property. The amount of Stamp Duty depends on the sale price of the property. In urban areas, the Stamp Duty rate is 4%, whereas in rural areas, it is 2%. Certain exemptions for Stamp Duty can be applied for in specific cases, such as;

• transfers within a family
• between associated companies
• between spouses
• or in favor of charitable organizations.

Land Rates:

Land Rates are taxes imposed by county governments within municipalities or townships. These rates are payable for services such as water, sanitation, and sewerage provided by the county. The Rating Act empowers county governments to determine the valuation of land for rating purposes.

Land Rent:

Land Rent is charged by the Ministry of Lands for Leasehold Titles. The Land Rent amount is typically stated on the Certificate of Title and is subject to revision. Most Land Rents are revised during lease renewal and extension processes.

Capital Gains Tax:

Capital Gains Tax was reintroduced in Kenya through the Finance Act of 2014. This tax applies to the sale of immovable property or transfer of shares for companies not listed on the Stock Exchange. As of January 1, 2023, the Finance Act of 2022 increased the Capital Gains Tax rate from 5% to 15%. However, there are exemptions for certain transactions;

• such as shares in government funds
• shares of a local authority
• private residences occupied continuously for at least three years
• and transfers of agricultural properties below a specified size.

VAT on Commercial Premises:

The Value Added Tax (VAT) Act stipulates that VAT is chargeable at a rate of 16% on rent payable for non-residential buildings or premises. Building owners meeting the threshold outlined in the VAT Act are required to register for VAT and remit the tax to the Kenya Revenue Authority (KRA) monthly.

Monthly Rental Income Tax:

For individuals or companies earning rental income from residential properties, a simplified tax regime called Monthly Rental Income Tax (MRI) is applicable. The tax rate is a flat 10% on the gross rent received per month. It is mandatory to file monthly returns, regardless of the frequency of rental payments. There are exemptions for;

• individuals earning below a specific threshold
• those earning over a certain amount annually
• rental income from commercial properties
• and non-resident landlords who can opt out of the simplified regime.

Considering these tax implications is essential when engaging in property transactions. By understanding and planning for these taxes, you can ensure a smooth and financially sound property buying experience.

Note: The information provided in this article is based on the current tax regulations at the time of writing and is subject to change. It is advisable to consult with tax professionals for the most up-to-date and accurate guidance.