Real estate refers to land and any permanent improvements or structures attached to it, such as building, houses, and other types of fixed assists. In Kenya real estate is among the lucrative business that flourishing at high rate that have attracted the attention of government to tap on the profits that originate on the industry through tax. When disposing of real estate in Kenya, it is important to be aware of the tax implications that come with it. There are several taxes that apply to the disposal of real estate, including capital gains tax, income tax, stamp duty, and value-added tax.
Capital gains tax
It is tax thatcharged on the transfer of property situated in Kenya, acquired on or before January 2015. The tax is charged at a rate of 15% of the net gain realized from the transfer of the property. However, there are exemptions to this tax, such as transfers between spouses or transfers to a registered home ownership savings plan.
Income tax
Income tax is charged on the rental income derived from the property. The rate of tax is 10% for residents and 20% for non-residents. It is important to note that this tax is charged on the rental income and not on the sale of the property.
Stamp Duty
Stamp duty is a tax that is charged on the transfer of property. The rate of stamp duty is 4% for urban areas and 2% for rural areas. It is important to note that stamp duty is charged on the market value of the property or the consideration paid, whichever is higher.
Value Added Tax (VAT)
VAT is charged on certain services related to real estate such as construction, surveying, and architectural services. The rate of VAT is 16%.
Tax Planning
To minimize tax liability, it is important to plan ahead. For example, one can consider transferring the property to a spouse or a registered home ownership savings plan to take advantage of the exemptions to capital gains tax. Additionally, one can consider structuring the sale of the property in a way that minimizes tax liability.
In conclusion, it is crucial to be aware of the various taxes that apply to the disposal of real estate in Kenya and to plan accordingly to minimize tax liability. Seeking professional advice can also help ensure compliance with all relevant tax laws and regulations to avoid inconvenience that hamper your business or kill your dream on venturing in the industry.
