Taxes And Costs Associated With Land In KenyaNov 06, 2023 Real Estate Investing
There are costs and taxes associated with land at every stage: acquisition, development, and sale. They are consistent throughout the country, so you only need to know what applies to you and why you should comply.
The government charges a levy during land transfer as a percentage of the land’s value based on location. In the townships and rural areas, a buyer pays 2% of the value of the land as provided by a government valuer, and 4% at the municipalities and cities. Payments should be made within 30 days of the property’s assessment by the valuer if the documents are prepared locally. These days, KRA has made it possible to make these payments through the iTax portal.
- There are exemptions to stamp duty as follows:
- Transfer of land to a charitable organization as a gift.
- Transfer of property between spouses.
- Transfer of family property during succession if it was registered under the deceased – read what we wrote on succession here.
Land Rent, Rates, and Search
Kenya has two land tenure systems: Freehold, where a title holder has absolute ownership of land to use as they please save for some conditional freeholds, where land is restricted to agricultural use, and Leasehold land tenure that grants a title holder the right to use the land for up to 99 years. after this period, they must renew the lease or it reverts to the original owner, in most cases, the state.
Land rates are charged on both leasehold and freehold land tenures. They are payable annually to the county government, failure to which the owner accumulates interest. Although this should be an annual affair, implementation could be better on the ground, so most landowners only pay their rates upon transfer. Land rent is charged to leasehold properties and payable annually to the Ministry of Lands and Physical Planning. The seller bears both costs.
Before the buyer even starts the conveyancing process, they want to map out the true ownership of their intended purchase, which means conducting a search through the Ministry of Lands. The ensuing report shows all transitions the property has gone through and encumbrance, if any.
Both seller and buyer will procure the services of an advocate for the transfer process. The Advocate Remuneration Order dictates these charges.
Investment Income from Land
Here are some of the taxes and capital deductions associated with value-addition on land. Note: Land itself does not attract capital allowances, only the structures on it and other qualifying assets.
The Finance Act 2020 introduced Monthly Rental Income (MRI), as a final tax at 10% of total revenue collected per month, calculated at gross without allowing any deductions. Fin Act 2023 adjusted it to a withholding tax (not final), 7.5% of total gross rental income, effective January 2024. Note: Under the present regime, a taxpayer collecting between Ksh. 288,00 and Ksh.15 million a year must file, and remit associated taxes monthly, while those earning above Ksh. 15M can choose to file it annually under other incomes. The annual regime allows for the deduction of allowable expenses.
Agribusiness and Commercial Buildings
All the costs under this category depend on the activity undertaken, but most investors forget or do not know about the associated capital allowances. If you put up a commercial building or a structure linked to education, such as a hostel on your property, you can claim 10% of the value of the building on reducing balance for 10 years. A hotel will attract a deduction of 50% on its value for the first two years of use and then 25% on the residue on reducing balance until depletion.
Farmwork deductions are applied to agricultural businesses on assets acquired and structures put up, including farmhouses on location – at 50% for the first year of use and 25% on the residue on reducing balance until depletion.
It’s time to sell. What are your costs and obligations?
Capital Gains Tax
From 1st January 2023, Capital Gains Tax (CGT) rose to 15% on net gains from 5% for property acquired on or before and after January 2015. You will be required to pay this final tax after all the allowable expenses associated with the parcel, such as legal fees, stamp duty, and others as provided in the Income Tax Act.
Other costs at this point include legal fees, agency fees, and other incidentals that make it possible to dispose of your property smoothly.
Looking for property within Kikuyu? Hit us up for not only the most prime properties in this location but also guidance on land transfer. Pro Property Solutions walks the process with you.