Rental Income Tax in Kenya: MRI Rate, How to File, and What Landlords Must Declare

What Is Monthly Rental Income (MRI) Tax?

The Monthly Rental Income tax was introduced by KRA to bring residential landlords into the tax net through a simple, hard-to-dispute mechanism. Instead of asking landlords to track expenses and compute profit, KRA takes 7.5% of whatever gross rent you receive each month. No receipts needed. No audit of your cost structure. Just gross rent multiplied by 7.5%.

The simplicity is deliberate. Before MRI, residential property income was technically taxable under normal income tax rules — but enforcement was patchy because landlords could claim expenses, dispute valuations, and the paperwork burden made compliance unattractive for both sides. MRI changed that. Seven and a half percent of a number that is hard to hide.

The MRI regime applies to residential property only — houses, apartments, bedsitters, single rooms, servants' quarters, and similar dwellings. Commercial properties (offices, shops, warehouses, factory units) are still taxed under the normal income tax framework, where expenses are deductible.

The Rule That Surprises Most Landlords: No Deductions

This is the part worth reading twice. Under MRI, you cannot deduct anything from your gross rent before computing the tax. The 7.5% applies to whatever your tenants pay you, regardless of your costs.

That means:

• Mortgage interest — not deductible under MRI, even if the rent barely covers the repayment
• Repairs and maintenance — not deductible, even if you just repainted the whole block
• Property management fees — not deductible, even if an agent is collecting rent on your behalf
• Insurance premiums — not deductible
• Ground rent and service charges — not deductible
• Depreciation — not applicable under MRI

This is a deliberate policy choice. MRI is a gross-receipts tax, not a profit tax. If your mortgage repayments are eating most of your rental income and the 7.5% tax feels painful, that is a real financial problem — but it does not reduce your MRI obligation. The only relief is if your annual rent exceeds the KES 15 million threshold, at which point you exit MRI entirely and move to the normal income tax framework (where expenses do become deductible).

Who Must File MRI Returns

Any person who receives residential rental income in Kenya is required to file and pay MRI. This includes:

• Kenyan citizens who own and rent out residential property
• Foreign nationals who own property in Kenya and receive rent from it
• Companies or entities receiving residential rental income (though most landlords are individuals)

The obligation applies regardless of whether you live in the property part-time or whether you think of yourself as a "landlord." If tenants are paying you to live in a residential space you own, you are within scope.

The KES 15 Million Threshold

MRI applies to annual residential rental income of below KES 15,000,000. This covers the overwhelming majority of individual landlords in Kenya.

If your total annual rent from residential properties hits or exceeds KES 15 million — that's roughly KES 1.25 million per month — you are required to move out of the MRI regime and declare your rental income under the normal income tax rules. At that point, allowable expenses become deductible, and your profit (not gross receipts) is taxed using the standard income tax bands.

For most landlords, the KES 15 million threshold is an irrelevance. But if you own multiple properties or have large units in high-value areas, it is worth tracking your cumulative annual rent each year.

What Counts as Rental Income Under MRI

The definition is broader than just the monthly cheque or M-Pesa transfer from your tenant. The following all count as rental income for MRI purposes:

• Monthly rent received — the core amount tenants pay for occupation
• Service charges passed on from the tenant — if you collect and pass on service charges, those receipts form part of your gross rent
• Key money or goodwill — any lump sum paid by a tenant to secure a tenancy
• Deposits retained at end of tenancy — if you keep a tenant's deposit (legitimately or otherwise) at the end of a lease, the retained amount becomes rental income in the month it is withheld

The common mistake is declaring only the base rent and ignoring service charges and retained deposits. These are specifically within scope.

What MRI Does NOT Cover

The MRI regime has clear boundaries. The following categories require separate tax treatment:

• Commercial property income — rent from offices, shops, warehouses, or mixed-use commercial spaces is taxed under normal income tax rules, not MRI. Expenses are deductible, and you file as business income.
• Short-term holiday rentals — Airbnb-style lettings and holiday homes rented by the night technically fall outside the long-term residential rental category. KRA's position is that these should be declared as business income under the normal tax framework, since they resemble hospitality rather than passive property letting.
• Mixed-use properties — if you own a building where the ground floor is a shop and the upper floors are residential flats, you must apportion income. The commercial portion goes under normal income tax; the residential portion goes under MRI. The split is typically based on floor area or a reasonable estimate of which income relates to which use.

A Worked Example: Monthly MRI Obligation

Here is a concrete example of how the maths works for a typical landlord.

At KES 50,000 gross rent per month, this landlord pays KES 3,750 in MRI tax — every month, twelve months a year. Annual MRI obligation: KES 45,000. Annual rent received: KES 600,000. Whether the mortgage on those two units costs KES 40,000 per month is irrelevant to this calculation.

How to File MRI Returns on iTax

Filing is done online via iTax every month. Here is the step-by-step process.

1. Log into iTax at itax.kra.go.ke using your KRA PIN and password.
2. Navigate to Returns → File Return → Income Tax → Residential Rental Income (MRI).
3. Select the return period — choose the month for which you are filing (e.g., May 2026 for rent received in May, due by 20 June).
4. Enter total rent received for that month. Include all rental receipts — base rent, service charges, any retained deposits.
5. The system calculates the tax automatically at 7.5%. Confirm the figure, then submit the return.
6. Generate the Payment Registration Number (PRN) that iTax produces after submission.
7. Pay via M-Pesa Paybill 572572. Use your KRA PIN as the account number and enter the PRN as the reference when prompted. You can also pay through your bank using the PRN.

Keep screenshots or PDF confirmations of each submission and payment. iTax does maintain records, but having your own copies makes any future query with KRA significantly easier to resolve.

Penalties for Late or Missed Filing

The penalty structure is worth understanding before you miss a deadline.

• Late filing: KES 2,000 flat per month, or 5% of the tax due — whichever is higher. If your MRI bill is small, the KES 2,000 flat rate kicks in and can easily exceed the actual tax owed.
• Late payment interest: 5% of the unpaid tax, plus 1% per month for each month the debt remains outstanding. This compounds. A KES 5,000 tax bill ignored for a year becomes roughly KES 5,600 before penalties fully stack up.
• Underdeclaration: If KRA audits your rental income and finds you declared less than you received — whether by accident or design — a 20% penalty on the additional tax applies, plus the late payment interest.

The penalty for late filing can exceed the tax itself if your monthly rent is modest. If you collect KES 15,000 per month, your MRI bill is KES 1,125. Miss the deadline, and the late filing penalty is KES 2,000 — nearly double the tax owed.

Annual Reconciliation and Records to Keep

At the end of each calendar year, you are required to file an annual return that reconciles your monthly MRI payments. iTax cross-checks what you declared month by month against the annual total. Any discrepancies — months where you filed less than your actual receipts — will show up here.

Records to maintain for at least five years:

• Signed lease agreements for all tenants, showing rent amount and start date
• Bank statements or M-Pesa records showing rent credited to your account
• Receipts or acknowledgements issued to tenants
• Correspondence about deposits retained at end of tenancy

Practical Tips for Staying Compliant

A few habits that make MRI compliance much less painful in practice.

Open a dedicated bank account for rent. If all your rent flows into one account that is used only for rental receipts, your monthly declaration becomes a matter of checking one bank statement. It also makes any KRA audit almost frictionless to respond to.

Set a calendar reminder for the 20th. MRI filing is monthly. It is easy to let one month slip, then two. The penalty for missing three months can exceed the rent for a month. Build the filing into a routine, not a scramble.

Issue receipts to tenants. Formal tenants — especially those employed by companies or NGOs — sometimes claim housing allowance from their employers, which may require documented evidence of rent paid. A simple receipt protects you as much as it helps them.

Cash rent still needs to be declared. Some landlords collect rent in cash and assume this keeps it invisible to KRA. There are two risks here. First, your tenants — particularly those who work for formal employers — may declare their rent expense to claim reliefs or allowances, creating a paper trail that doesn't match your returns. Second, KRA can match visible wealth accumulation (loan applications, property purchases) against declared income when it investigates discrepancies.

Tell your property manager about MRI. If an agent collects rent on your behalf, the gross rent they collect — before deducting their management fee — is your rental income for MRI purposes. You cannot reduce the taxable amount by what you pay the agent.

What If You Have a Mortgage?

This is the most common frustration landlords raise. You borrowed to build or buy the property. The monthly mortgage repayment may be larger than the net rent you pocket after factoring in the MRI payment. The 7.5% applies to gross receipts regardless.

This is not an oversight in the law — it is the point. MRI is a gross-receipts tax specifically because allowing deductions (including mortgage interest) made the previous system easy to game. KRA chose simplicity and enforceability over equity from the landlord's perspective.

If your situation is such that the combined weight of mortgage repayments and MRI makes the rental income genuinely uneconomic, the MRI regime does not offer relief. The only structural exit is if your annual rent exceeds KES 15 million, at which point you file under normal income tax and mortgage interest becomes deductible again.

For everyone below that threshold, the honest advice is to factor MRI into your rental yield calculations before committing to a property investment, not after.

The Short Version

Residential landlords in Kenya pay 7.5% of gross rent under the Monthly Rental Income regime. No deductions. Filing is monthly — due by the 20th of the following month — on iTax, with payment via M-Pesa Paybill 572572. Penalties for late filing start at KES 2,000 per month and can easily exceed the tax itself for smaller landlords.

The rules that catch most people off guard are the ones already emphasised here: no deductions at all under MRI (including mortgage interest and repair costs), the requirement to include service charges and retained deposits in gross rent, and the fact that the KES 15 million annual threshold is the only gateway to the deductions-allowed framework.

If you have been collecting rent without filing MRI returns, the time to start is now rather than when KRA sends a notice. Voluntary compliance is simpler and cheaper than the alternative.