Capital Gains Tax

Capital gains tax (CGT) was re-introduced in Kenya in 2015 through the 2014 Finance Act that amended the Income Tax Act. This is an income tax payable on gain/profit made from the transfer of capital assets which are: property, investment shares and marketable securities. It is charged and computed as per the Eight Schedule of the Income Tax Act.


Capital gains tax was initially introduced in Kenya in 1975 and suspended in 1985. The main reason for the suspension was to encourage the growth in the mining sector, real estate market and deepening local participation in capital markets. This move seems to have worked with and is linked to the success of the National Securities Exchange being a high performer continentally, and the growth of Kenya real estate. The action to re-introduce this tax in 2014 was influenced by the need widen the tax net and subsequently increase revenue collection by the government. (KPMG Kenya, 2015)

Computation of Capital Gains Tax

The taxable gains are computed on the amount by which the transfer value of the property exceeds the adjusted cost of the property simply referred to as the Net Gain. The net gain is taxed at a flat rate of 5%. As such the amount payable is 5% of Net Gain;

  • Transfer value is the amount of or value of the consideration or compensation of the transfer of the property less incidental costs
  • Adjusted cost is the sum of the cost of the cost of acquisition plus the costs spent developing or preserving the property and the incidental costs of acquiring the property. In this regard, the deduction of costs of property does not apply in the case of securities listed on any securities exchange approved under the Capital Markets Act.
  • Incidental costs are the costs allowable to be included in the calculation of net capital gain. They include the professional fees of legal advisers, surveyor, valuers or agents engaged during the transfer; the costs of the transfer such as stamp duty and registration fees; costs of advertising to find a buyer/seller; and any other costs allowed by the Commissioner.

The Payee

Capital gains tax is paid by the seller or transferor once the transfer is complete. This is different from the payment of Stamp Duty, which is paid before registration of the transfer or transaction at the cost of the buyer or transferee. In Kenya Revenue Authority v Kenya Bankers Associations [2020]eKLR the Judge recognized that it is only possible to pay the Capital Gains Tax of a property after the transfer has been completed and registered, and not before the registration of the transfer, together with the stamp duty for registration of the transfer documents. The rationale for this was that Capital gains tax is a tax on the gains made on the transfer of land, which can only be determined when the transfer is completed, at which point the payee will have received full payment of the transfer. The tax cannot be paid on the assumption that the consideration for the transfer is already known to the payee, hence the tax payable can only be computed before completion. The gains have to be made first for the tax to be levied.


It is important to note that any transfer of property is subject to taxation regardless of whether any payment or profit was made from the transfer. This includes selling, gifting, auctioning property held as security and even loss of property. However, not every transfer of property is subject to this tax. There are certain transactions that are exempt from the capital gains tax including: property that is being transferred as part of the administration of a deceased person’s property; transfer of property between immediate family or spouses; vesting of property to an administrator, executor or trustee; transmission of property to a liquidator; transfer of property to secure a loan or debt, or a reconveyance of property held as security by the creditor to a borrower; and transfer of machinery just to mention a few.

In order to ascertain whether a transfer is subject to capital gains tax, it is important to seek proper legal advice.

For more information, please contact

Benson Ngugi benson.ngugi@attorneysafrica.com

Hellen Waithira hellen.waithira@attorneysafrica.com

Rushmi Matete rushmi.matete@attorneysafrica.com


Alternative Justice System Policy

In an effort to breakdown conceptual structures of legal practice and thought adopted from our colonial and post-colonial contexts– Chief Justice David Maraga, on 28th /Aug/ 2020, launched the Alternative Justice System (AJS) Policy which is aimed at enhancing access to justice and supporting expeditious delivery of justice to Kenyan citizens. The Alternative Justice Systems (AJS) policy was drafted by the Taskforce on Informal Justice Systems gazetted by the retired Chief Justice Dr. Willy Mutunga in May 2016.

The AJS policy will provide alternative forms of dispute resolution mechanisms, including traditional approaches, as long as they:

Do not Contravene the Bill of Rights,

Are not repugnant to justice or morality

Are not inconsistent with the Constitution or any written law.

During the Launch, CJ Maraga noted that; Kenyan communities have, for generations, had their own justice systems that have held, and continue to hold, societies together. With this in mind, the Alternative Justice Systems as adopted in this Policy are community-centered and reflect the lived realities of the people and, therefore, more accessible to people. 

Justice will be achieved differently: The AJS system will prevent injustice and reduce harm suffered by people by focusing on root causes of injustice and on justice needs of entire communities and societies rather than just individuals. He noted that the policy is an important guide on the operationalization of the systems, for all the institutions in the justice system sector.

His Deputy, Chief Justice Philomena Mwilu said that ideas and methods between formal Justice systems and Alternative Justice System practices and mechanisms will improve each other and deepen justice provision in the country.

We are eager to experience the changes the AJS will bring to the Kenyan citizens.