All You Need to Know About Land Taxes in Kenya
Article 209 of the Constitution of Kenya empowers both the National and County Governments to impose taxes and charges to raise revenue. The National Government is responsible for taxes such as Value Added Tax (VAT) and customs duty, while County Governments may impose taxes like property tax, entertainment tax, and others as provided by law.
Several taxes relate specifically to land, as outlined below:
1. Land Rates
Land rates are levies imposed on all parcels of land and are payable to County Governments. These rates vary depending on the location, commercial value, and size of the land. County Governments have the authority to determine the rate, with some, like Nairobi County, charging up to 8% of the land’s value annually.
Upon full payment, the landowner receives a Rates Clearance Certificate, which serves as conclusive proof that all due rates and accrued interest have been settled.
2. Land Rent
Land rent is a levy imposed on leasehold parcels of land, payable to the Ministry of Lands and Physical Planning. The annual rent is usually set at the time of issuing the lease.
A Land Rent Clearance Certificate is issued as proof of payment and remains valid for one year. It is a mandatory document in land transactions, as sellers must provide it before completing the transfer of ownership.
3. Income Tax on Land Transactions
The Income Tax Act (ITA) regulates taxation on income derived from land, including:
a) Capital Gains Tax (CGT)
CGT is a tax on profits made from the transfer of land, buildings, and shares. It was reinstated in 2015 (having been suspended in 1985) and is currently charged at 15% of the net gain. Some transactions may qualify for exemptions under the ITA.
b) Rental Income Tax
Tax on rental income applies to landlords earning income from rental properties. The taxation methods vary depending on the residency of the landlord and the type of property:
- For Non-Resident Landlords: Tenants must withhold 30% of the rent and remit it to the Kenya Revenue Authority (KRA) as final tax.
- For Resident Landlords (Commercial Property): Tenants acting as appointed agents must withhold 10% of the rent and remit it to KRA. This is not a final tax, meaning the landlord must still file an annual tax return.
- For Resident Landlords (Residential Property): Landlords have two options:
- Monthly Rental Income Tax – Charged at 10% of the gross rent (final tax).
- Regular Income Tax – Landlords can pay taxes as per normal income tax brackets (with installment tax and final tax).
4. Stamp Duty
Stamp duty is a tax levied under the Stamp Duty Act (Cap 480) on legal instruments, including land transfers, charges, and leases. The rate depends on factors such as:
- The type of property (urban or rural).
- The purpose of the transaction (sale, lease, mortgage, etc.).
- The timing of payment.
The law also provides certain exemptions to stamp duty payments under specific conditions.
Conclusion
Land taxes are an essential source of government revenue and help fund infrastructure projects such as road construction, waste management, and sewerage systems. Landowners should ensure timely tax payments to avoid penalties and legal complications.
