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There are three major types of property taxes;
✓ The first is Land Rates paid to the governments for the provision of services such as street lighting, water sewerage and maintenance of various infrastructure.
✓ The second is Stamp Duty, which is paid on the transfer of property by the purchaser. It is often calculated as 2% market value for rural holdings and 4% for properties in gazetted townships. On property acquired through succession, there is a smaller charge. On the other hand, land subject to partitioning also attracts stamp duty. The only exemption to stamp duty is a transfer or gift between spouses who must prove they are married.
✓ The third tax is Capital Gain Tax which was suspended in Kenya in 1985 but was later re-introduced in 2015.
Capital gains tax is charged on the net gains made from the property by the seller. Thus, it is the responsibility of the seller to pay the stamp duty and not the buyer. In Kenya, the charge is 5% with many other countries charging a rate of 20% and above.
Net gains are the profit made from transacting in a property by the seller after deducting incidental /expenditure costs and adjusted cost. Examples of Incidental Costs are legal fees, advertisement, agent commission, valuation fees, survey fees etc. Adjusted cost of a property is the cost of acquisition.
The seller is responsible for providing and proving incidental costs and the adjusted cost. Where information is not available the value is deemed to be equal to the market value of the property at the time it was acquired or based on the stamp duty paid.
Documents required for the payment of Capital Gains Tax are;
1. The CGT 1 form completed by the seller
2. Sale/ transfer agreement
3. Proof of incidental costs on the transfer of property
4. All other ownership documents.
A report from a registered valuer about the property is also required and lastly, a self-assessment on taxation by the seller might be required.
Transactions exempted from Capital Gain Tax are like disposal of property by an administrator of the estate of a deceased, vesting of property to a liquidator or receiver and transfer of individual residence occupied by the seller for at least three years before the transfer. Another exemption is a transfer of assets between spouses and former spouses and their immediate family (like children). The other is the sale of land by an individual whose proceeds are less than KES 3 million, the sale of agricultural land by an individual outside gazetted townships where the property is less than 50 acres (20.23 ha).
