CGT is levied at a rate of 15% (previously 5%) on the net gains made from the sale of land or real estate. There are, however, exemptions to this, including:

• the transfer of property for the purposes of securing a debt or a loan;
• the transfer of property by a personal representative in the course of the administration of the estate of a deceased person;
• the transfer of property by a trustee to a beneficiary;
• the transfer of property between spouses or to immediate family;
• the transfer of property to a family company;
• the transfer of private residences, subject to the fulfilment of certain conditions;
• the transfer of agricultural land by individuals, subject to the prescribed conditions; and
• the transfer of property necessitated by internal restructuring within a group.
• Save for the exempt transactions set out above, the question remains, at what point should the seller remit CGT?

Subject to the Finance Act, 2023, the Income Tax Act was amended to the effect that the due date for CGT should be the earlier of the date of receipt of the full purchase price by the seller or registration of the transfer of title. This raised the pertinent issue of when the taxable gain from a real estate transaction accrues.

The debate was taken to the courts, and in its decision in Law Society of Kenya v Kenya Revenue Authority and Another [2017] eKLR Petition No 39 of 2017, the High Court was of the view that CGT can only be levied after the registration of the transfer by the responsible land registrar, since a taxable gain only accrues to the seller once the property has been legally disposed. This aligned with the recent decision of the Tax Appeals Tribunal (Tribunal) in the case of Haria v Commissioner of Domestic Taxes (Tax Appeal E558 of 2023) [2024] KETAT 845 (KLR). Though the case dealt with a transfer of shares transaction, the Tribunal reiterated the High Court’s finding in the Law Society of Kenya case, that the tax point for payment of CGT is upon registration of the transfer instrument in favour of the transferee.

Accordingly, sellers of property should ensure that the CGT payable is remitted to the Kenya Revenue Authority (KRA) upon registration of the transfer, failure of which they will be liable to a penalty of 5% of the tax payable, and interest at the rate of 1% per month.

Comment

Recently, we have noted a renewed focus by the KRA on enforcing CGT compliance for real estate transactions, for both individuals and companies, largely driven by the need to collect more revenue. These potential risks buttress the need for sellers to seek legal advice from trusted counsel to avoid non-compliance issues, as well as enjoy the available exemptions, whenever applicable.