Capital Gains Tax in Kenya: what diaspora property sellers actually pay

When you sell residential property in Kenya, the Kenya Revenue Authority takes 15% of the gain. That sentence sounds simple. The reality has enough moving parts that diaspora sellers routinely over-pay by 20 to 40% because they did not document the cost base, missed an exemption, or did not plan the disposal year. Here is what CGT in Kenya actually is, what reduces it, and what most sellers get wrong.

What CGT actually is

The Capital Gains Tax in Kenya was reintroduced in 2015 at 5% and increased to 15% with effect from 1 January 2023. It applies to the disposal of chargeable property, including land and buildings, and is charged on the net gain (sale price minus cost base minus allowable expenses). It is paid by the seller, due on or before transfer of the title.

Two practical points. First, the tax is final. There is no further income tax on the gain. Second, the 15% rate is a flat rate, not a marginal rate, so the tax calculation is straightforward: ((sale price) minus (cost base + allowable expenses)) multiplied by 0.15.

What the cost base actually includes

The cost base is where most diaspora sellers leave money on the table. It is not just what you paid for the property. It includes:

• The original purchase price, including stamp duty and legal fees on acquisition.
• Capital improvements: extensions, full kitchen or bathroom replacement, swimming pool installation, structural changes. (Routine repairs do not count.)
• Selling costs: agent commission (if any), legal fees on disposal, advertising costs.
• Costs of obtaining clean title: any payments made to clear historical encumbrances on the title before sale.

The diaspora seller’s problem is that capital improvements often happened five, ten, fifteen years ago, with receipts long lost. KRA accepts bank-statement evidence of payment, contractor invoices, and even sworn affidavits in some cases, but the burden of proof sits with the seller. If you have ever upgraded a property and intend to sell, keep digital copies of every contractor invoice and the corresponding bank transfer.

The diaspora seller’s problem is rarely the 15% rate. It is that they cannot prove the cost base and end up paying CGT on gains they did not actually make.

The four exemptions that actually apply

1. Principal place of residence

Disposal of a property that has been the seller’s principal place of residence for at least three of the five years preceding the sale is exempt. For most diaspora sellers this does not apply, because the property has been a let property, not a residence. For sellers who lived in the property before moving abroad, this exemption can entirely eliminate CGT.

2. Transfers in restructuring

Transfers between members of the same group of companies for genuine restructuring purposes are exempt, subject to specific KRA approval. Largely relevant for property held in corporate structures.

3. Transfer of property valued under KES 3 million

Property where the transfer value is below KES 3 million is exempt. Limited application in Nairobi residential at current price levels.

4. Death and inheritance

Transfers on the death of the registered owner to the estate, and from the estate to beneficiaries, are not subject to CGT. The recipient takes the property at market value at the date of death as their cost base, which can substantially reduce CGT on a future sale.

Filing and payment

1. The seller’s lawyer files a CGT return on iTax before submitting transfer documents to the registry.
2. The 15% CGT is paid via the iTax payment slip, typically through M-Pesa or bank transfer.
3. The KRA-issued CGT certificate is then attached to the transfer documents at the registry.
4. Without the CGT certificate, the registry will not process the transfer. CGT is therefore effectively collected at source, on every disposal.

Planning moves that work

1. Document the cost base now

If you have improved a property since you bought it, gather every contractor invoice and matching bank transfer now. Store digital copies. The difference at sale can be material. On a property bought for KES 12 million and sold for KES 22 million, KES 2 million of documented improvements cuts CGT from KES 1.5 million to KES 1.2 million.

2. Use the principal residence exemption when applicable

If you lived in the property for any three of the five years before sale, you may qualify. For diaspora owners this sometimes means timing the sale to fall within the five year window after a period of residence. The qualifying test is fact- based; involve a Kenyan tax adviser early.

3. Time the disposal year

Kenya does not currently allow loss carry-forward on personal CGT, but the rate has changed twice in the last decade. If a rate change is announced for the following financial year (Finance Bill is published in April or May), some sellers may legitimately accelerate or delay completion. Speak to a tax adviser about timing the disposal.

4. Hold in the right structure

Property held in a Kenyan limited company is treated differently from property held personally. Company disposals are subject to CGT but the cost base treatment, allowable expenses, and ability to offset gains against losses can be more flexible. For larger portfolios, a corporate structure is often more efficient. For a single residential unit it rarely justifies the overhead.

Practical checklist before you sell

1. Pull together every cost-base document: original purchase, stamp duty, legal fees, capital improvements with bank evidence.
2. Confirm any principal residence claim with a tax adviser before listing.
3. Get a current valuation. The KRA reference minimum value (the “assessed value”) is increasingly used as a floor for CGT calculation. If your sale price is below it, KRA can re-assess.
4. File MRI tax returns up to date through the period of ownership. KRA will check.
5. Engage a Kenyan property lawyer experienced in disposals to handle the iTax filing alongside the conveyancing.

How we help

For Goldstay-managed properties, we maintain a full digital record of MRI filings, capital improvements, and operating costs from day one of management. When the time comes to sell, the cost-base documentation is already organised. We also coordinate the lawyer, the valuer, and the tax adviser if needed.

For ongoing rental tax, see the MRI tax guide. If you are considering a sale and want to structure the disposal cleanly, send us the details on this form and we will help you find the right adviser and coordinate the process.