The 15% CGT Shock: Should You Sell Your Property Now or Hold Until 2026?

Kenya’s Capital Gains Tax (CGT) is set to triple from 5% to 15% effective January 1st, 2025. If you own property, this change could cost you hundreds of thousands—or even millions—of shillings. The question on every property owner’s mind: Should I sell now or wait?

The Kenya Finance Act 2024 has sent shockwaves through the real estate market, and property owners across the country are rushing to understand what this means for their investments. Whether you’re sitting on a piece of land in Karen, an apartment in Kilimani, or commercial property in Westlands, this CGT increase will directly impact your bottom line.

In this comprehensive guide, we’ll break down exactly what’s changing, run the numbers on real scenarios, and help you make an informed decision about your property.

Understanding Capital Gains Tax in Kenya

Capital Gains Tax (CGT) is a tax levied on the profit you make when you sell an asset—in this case, property—for more than you paid for it. Introduced in Kenya in 2015, CGT has been charged at a relatively modest 5% rate on the net gain from property transfers.

Here’s a simple example of how CGT currently works:

Under the new 15% rate effective January 2025, that same transaction would look dramatically different:

That’s an additional KES 500,000 in tax on the same transaction—a 200% increase in your tax liability.

What’s Driving the CGT Increase?

The government’s decision to raise capital gains tax from 5% to 15% is part of a broader revenue mobilization strategy. Kenya is facing mounting debt obligations and budget deficits, and the Kenya Revenue Authority (KRA) is under pressure to increase tax collection.

Real estate has long been viewed as an undertaxed sector in Kenya, with significant wealth concentrated in property holdings. By tripling the CGT rate, the government aims to capture more revenue from property transactions while discouraging speculative real estate investments.

The Critical Question: Sell Now or Hold?

The answer depends on several factors unique to your situation. Let’s examine both scenarios:

Running the Numbers: A Real-World Scenario

Let’s say you own a property in Nairobi that you bought for KES 20 million in 2018. Today it’s worth KES 30 million, giving you a capital gain of KES 10 million.

Scenario	CGT Rate	Tax Payable	Your Net Profit
Sell in December 2024	5%	KES 500,000	KES 9,500,000
Sell in January 2025+	15%	KES 1,500,000	KES 8,500,000
Difference		KES 1,000,000	-KES 1,000,000

By waiting until 2025, you’d pay an additional KES 1 million in taxes on this transaction. That’s money that could go toward your next investment, retirement savings, or business expansion.

Important CGT Exemptions You Should Know

Before making your decision, understand that certain property transfers are exempt from capital gains tax in Kenya:

• Principal Private Residence: Your main home is exempt from CGT if you’ve lived there for at least 3 years before selling
• Gifts to Family: Property transfers between spouses, parents, and children as gifts are exempt
• Inherited Property: Property received through inheritance is not subject to CGT (though estate duty may apply)
• Company Reorganizations: Certain business restructuring transactions may qualify for exemption

If your property falls under any of these categories, the CGT increase may not affect you at all.

Market Timing Considerations

Beyond taxes, consider the current real estate market dynamics:

Current Market Conditions (December 2024): Kenya’s property market is experiencing moderate activity, with some segments showing resilience while others face headwinds from high interest rates and economic uncertainty.

Buyer Sentiment: Many buyers are aware of the impending CGT increase and may be more willing to close deals quickly in 2024 to lock in lower rates themselves.

Supply Dynamics: There may be increased supply as sellers rush to complete transactions before 2025, potentially creating downward pressure on prices in the short term.

What You Should Do Right Now

If you’re considering selling, here’s your action plan:

1. Get a Professional Valuation: Understand your property’s current market value to calculate potential CGT liability accurately
2. Review Your Documentation: Gather all purchase documents, improvement receipts, and legal papers. Allowable deductions can reduce your taxable gain
3. Consult a Tax Advisor: Have a qualified tax consultant review your specific situation and confirm whether you qualify for any exemptions
4. Evaluate Your Timeline: If selling makes sense, ensure you can complete the transaction before December 31, 2024. Property transfers require time for due diligence, financing, and registration
5. Consider Your Long-term Goals: Don’t let tax considerations alone drive your decision. Factor in your investment strategy, liquidity needs, and personal circumstances

The Bottom Line

The CGT increase from 5% to 15% is substantial, and for most property owners planning to sell in the near future, completing the transaction before 2025 offers clear tax savings. However, your decision should be based on a comprehensive analysis of your specific situation.

Consider consulting with financial advisors, tax consultants, and real estate professionals who can help you navigate this transition. The cost of professional advice is minimal compared to the potential tax savings or investment opportunities you might unlock.

Remember: tax legislation can be complex, and individual circumstances vary. This article provides general guidance, but should not replace personalized professional advice.