CAPITAL GAIN TAX: Tax Law.
INTRODUCTION
In Kenya, there are many types of taxes paid to the National Government and Capital Gain Tax is one of them. This type of tax is in regards to the gain you get after selling or transferring a property in Kenya. This is not a new tax introduced by the government but it was suspended in 1985 and has now been re-introduced effective of 1st January, 2015.
WHAT IS CAPITAL GAIN TAX (CGT)
Capital Gain Tax means a tax chargeable on the whole of a gain which accrues to a company or an individual on or after 1st January 2015 on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January, 2015.
The rate of tax. The rate subjected to the net gain is 5% and it is a final tax and cannot be offset against other income taxes.
The net gain is the excess of the transfer value over the adjusted cost of the property that has been transferred. It is this excess that is subjected to tax at 5%.
Who pays the tax? The tax is to be paid by the person (resident or non-resident) transferring the property, that is, the transferor. The transferor can either be an individual or a corporate body. So whoever is transferring the property is the one subjected to the CGT.
WHAT TO KNOW ABOUT CAPITAL GAIN TAX (CGT)
- What happens when the transferor makes a loss? When one makes a loss, the loss may be carried forward to be deducted against the next gain at a future date.
- What documents are needed?
a) Completed CGT form by the seller.
b) Copy of Sale/Transfer Agreement of the property.
c) Proof of the incidental costs related to the acquisition and transfer of the property.
d) A copy of the Title Deed or ownership document for the property
e) Report from a Registered valuer for property transactions between
related parties
f) Any other document. - What is the due date? As mentioned, the CGT shall be paid upon the transfer of the property and so it is ideal to pay it not later than 20 days after the transfer.
- What are the penalties for not paying CGT? The law is not clear on this but this will be considered as Tax evasion which is illegal.
- What are the exceptions on Capital Gain Tax? Just to name a few, they include;
• Transfer of property between spouses as part of divorce settlement
• Disposal of property for purpose of administering the estate of a deceased person
• Disposal of property for purpose of administering the estate of a deceased person
For one to know when the liability to pay the CGT accrues, one will be guided by the Halsbury’s Laws of England which stipulates three prerequisites of Capital Gains tax before the tax can be claimed, namely;
(a) The disposal of an asset;
(b) The accrual from that disposal of a chargeable gain; and
(c)The accrual of that gain to a person chargeable to Capital gains tax.
The process of payment is quite simple and straightforward. Again, it is prudent to pay for the CGT on or before transfer of property but not later than the 20th day after the transfer. When this is in order, the payment shall be initiated via iTax and the modes of payment is either through cash, cheque or Real Time Gross Settlement (RTGS). After the payment, you will receive a payment slip. Present the payment slip at any KRA appointed bank with the due tax to complete payment.
It is well advised to know; the payment slip will be required by the buyer in order for them to pay the stamp duty. The payment slip expires within Thirty (30) days and hence, the stamp duty should be paid within the Thirty (30) days.
CONCLUSION
The parties of a sale of property should be aware of their Statutory duties and the Statutory Implications in regards to taxes for easier transfer of the property.
