Capital Gains Tax in Kenya: When It Applies, the Rate, and What Is Exempt

What CGT Is — and Why Kenya Brought It Back

Capital Gains Tax is a tax on the profit (gain) you make when you sell or transfer a capital asset — something you bought to hold, not to trade as part of a business. Kenya first introduced CGT in 1975, suspended it in 1985 to encourage investment, and reintroduced it in January 2015 under the Finance Act 2014.

For its first eight years back, CGT sat at a flat 5% of the net gain. Then the Finance Act 2022 tripled it to 15%, effective from January 2023. At that rate, CGT is no longer a minor afterthought — on a property that has appreciated significantly, it can be a very large bill.

The tax is administered by KRA under the Income Tax Act, Chapter 470 of the Laws of Kenya. The relevant provisions sit in the Eighth Schedule of the Act.

What Is Subject to CGT

CGT applies when you transfer a capital asset situated in Kenya. The Income Tax Act defines a transfer broadly — it includes a sale, exchange, gift, or any other disposal where the asset changes hands.

The three main categories that attract CGT are:

• Land and buildings: Any parcel of land in Kenya, whether bare land, developed residential property, commercial property, or industrial property. This includes improvements made to the land (structures, paving, fencing) where those improvements have been capitalised.
• Shares or securities in a private company: If you sell shares in a company that is not listed on the Nairobi Securities Exchange, CGT applies to your gain. This covers founder shares, investor shares, and shares in family businesses.
• Interests in a partnership: If you sell or transfer your stake in a partnership — a business registered as a partnership rather than as a limited company — the gain on that transfer is subject to CGT.

Note what is not on that list: trading stock. If you are a property developer buying and selling land as your core business, those transactions are treated as ordinary business income taxed under normal income tax rules — not as capital gains. The distinction matters: CGT applies to investors and owners, not to traders dealing in property as stock-in-trade.

How the Net Gain Is Calculated

CGT is charged on the net gain, not the full sale price. The net gain is simply what you received minus what the asset cost you.

Net gain = Transfer value − Cost

The transfer value is the higher of the actual sale price or the open market value at the date of transfer. KRA will use the open market value if they believe you sold below market — so artificially depressed sale prices do not reduce the gain.

The cost includes:

• The original purchase price you paid for the asset
• Incidental costs at acquisition: legal fees, stamp duty, valuation fees paid at the time of purchase
• Capital improvement costs: permanent improvements to the asset, such as putting up a building on bare land or adding a permanent structure. Routine maintenance and repairs do not count.
• Incidental costs at disposal: legal fees paid on the sale side

This is why keeping your original purchase documents matters. Without a purchase agreement, title deed, and improvement receipts, you cannot establish your cost basis — and KRA may assess CGT on the full transfer value rather than just the gain.

Worked Example: Selling Land

Here is a straightforward example showing how CGT is calculated on a property sale.

If you had purchased the land for cash and had no improvement receipts or acquisition cost records, KRA could assess CGT on the full KES 5,000,000, resulting in a CGT bill of KES 750,000 — more than KES 325,000 higher. That difference illustrates exactly why documentation matters.

What Is Exempt from CGT

The exemptions in the Eighth Schedule cover a wide range of common transactions. Many Kenyans who worry about CGT are actually dealing in exempt assets.

1. NSE-Listed Securities

Buying and selling shares on the Nairobi Securities Exchange is fully exempt from CGT. This exemption is deliberate — it was designed to encourage participation in the capital markets. If you trade stocks listed on the NSE, you do not pay CGT on your gains, no matter how large they are.

The exemption applies to NSE-listed equities and bonds. It does not apply to shares in private companies that are not listed — those are taxable.

2. Transfer of Principal Private Residence

If you sell the home you actually live in — your principal private residence — the gain is exempt from CGT. This is the most significant exemption for most Kenyans.

For the exemption to apply, the property must have been used as your private residence in Kenya. You cannot claim this exemption on a holiday home, a rental property, or a property you have never lived in. If you used part of the property as a home office or rented out a portion, only the proportionate share used as your actual residence qualifies for exemption.

3. Transfers Between Spouses

Transfers of property between spouses are exempt from CGT. This applies to matrimonial property transfers — for example, where one spouse transfers a property title into joint names, or where property is divided between spouses in a recognised legal arrangement. The transfer must be between spouses, not between unmarried partners or relatives.

4. Inheritance Transfers

When someone dies, the transfer of assets to their estate or to beneficiaries is exempt from CGT. The estate itself does not pay CGT at the point of death.

However, this exemption does not mean inherited assets are permanently CGT-free. When the heir later sells the inherited asset, CGT applies — and the cost basis used is the value of the asset at the date it was inherited, not the original purchase price. So the tax is deferred, not forgiven.

5. Agricultural Land — Small-Scale Farmers

Agricultural land used by qualifying small-scale farmers may be exempt from CGT under conditions set out in the Eighth Schedule. This exemption is narrower than it sounds — it applies to land actually used for farming, not to agricultural-zoned land held for speculative purposes. Commercial farms and large holdings typically do not benefit from this exemption.

6. Court-Sanctioned Corporate Reorganisations

Transfers of assets between companies under a court-approved scheme of arrangement or reconstruction are exempt. This is primarily relevant to corporate mergers and restructurings, not to ordinary property transactions.

Who Pays CGT and When

CGT is paid by the seller — the person transferring the asset. It is not the buyer's liability.

The critical timing rule: CGT must be paid to KRA before or at the time the transfer is completed. In practice, this means before the property transfer is registered at the Lands Registry.

The Lands Registry will not register a transfer of property without one of two things: proof that CGT has been paid, or proof that the transaction is exempt. Your conveyancing lawyer (advocate) is legally responsible for ensuring this is done before they file for registration. Any advocate who registers a transfer without CGT payment is exposed to personal liability.

For share transfers in private companies, CGT must similarly be paid before the share transfer is lodged with the Companies Registry.

How to File and Pay CGT on iTax

The process runs through KRA's iTax portal at itax.kra.go.ke. Here is the sequence:

1. Log in to iTax using your KRA PIN and password.
2. File a Capital Gains Tax return: go to Returns → File Return → Capital Gains Tax. You will enter the details of the transaction — acquisition cost, improvement costs, transfer value, and date of transfer.
3. The system calculates the tax based on the figures you enter and generates a payment slip with a reference number.
4. Pay the tax via M-Pesa Paybill 572572, entering your KRA PIN as the account number and the payment reference generated by iTax.
5. Obtain and print the CGT payment receipt from iTax. This is what your advocate will present to the Lands Registry.

If the transaction is exempt, you still need to file a return on iTax declaring the exemption and the basis for it. The Lands Registry needs to see a filed return — exempt or not — before it will process the transfer.

Stamp Duty vs CGT: Two Different Taxes on the Same Transaction

This is the most common source of confusion for property buyers and sellers.

When property changes hands in Kenya, two taxes arise — paid by different parties:

• Stamp duty: paid by the buyer, on the purchase price. The rate is 4% for urban properties and 2% for rural properties. Stamp duty is due at the time of transfer and is a tax on the act of purchase.
• Capital Gains Tax: paid by the seller, on the gain (the profit on sale). The rate is 15% of the net gain. CGT is due before the transfer is registered and is a tax on the profit from the sale.

Both taxes relate to the same transaction but are entirely separate obligations. A buyer should never confuse their stamp duty liability with the seller's CGT liability — and a seller should never assume that stamp duty being paid means CGT has been handled.

CGT vs Rental Income Tax: What Triggers Which

Another question that comes up regularly: does renting out a property trigger CGT?

No. Renting out a property is ordinary income. The rent you collect is taxed under Monthly Rental Income (MRI) tax if your annual rental income is KES 288,000 or less, or under normal income tax if above that threshold. CGT does not apply to rental income at all.

CGT is triggered only when you transfer ownership — when the asset moves from your name to someone else's. Renting does not transfer ownership. You remain the owner; you are simply licensing use of the property.

This distinction matters for planning. You can earn rental income for decades with no CGT exposure. The moment you decide to sell, CGT applies to the gain accumulated over those years.

Record Keeping: What to Hold On To

The documents that establish your cost basis are what reduce your CGT bill. Keep these for as long as you own the asset — and then some, since KRA can query a return for several years after filing.

• Original purchase agreement: shows the purchase price and the date of acquisition
• Title deed or title certificate: confirms legal ownership and the date the title was transferred to you
• Receipts for stamp duty and legal fees at purchase: these are allowable costs that increase your cost basis
• Improvement receipts and contracts: for any permanent improvements — a building, boundary wall, borehole, or other capital addition. Keep both the contracts and the payment receipts.
• Valuation reports: if the property was inherited, a valuation at the date of inheritance establishes the cost basis going forward

Scan these and keep digital copies in cloud storage. Physical documents deteriorate; a property bought in 2010 may need its purchase records produced in 2030 when you eventually sell.

Quick Reference: CGT Checklist for Sellers

The Bottom Line

At 15%, CGT in Kenya is no longer a negligible line item. On a property bought for KES 3 million and sold for KES 8 million, the CGT bill is KES 750,000 before adjusting for allowable costs. That is money that needs to sit in the transaction plan before the deal closes — not be discovered at the Lands Registry.

The exemptions are meaningful: if you are selling the home you live in, you are likely exempt. If you trade stocks on the NSE, you are exempt. But if you own investment land, a second property, or shares in a private company, CGT is a live obligation. Know your cost basis, keep your documents, and file on iTax before completion. Your conveyancing advocate should be guiding this process — but it helps to understand what is expected so nothing falls through the cracks.