Purchasing property in Kenya, whether commercial or non-commercial (residential), involves several taxes and legal costs that buyers must be aware of to ensure a smooth transaction and compliance with Kenyan law. These costs exceed the purchase price, including various statutory taxes, legal fees, and administrative charges. Understanding these expenses is crucial for budgeting and ensuring compliance with Kenyan property laws. Below is a comprehensive and detailed guide on the various taxes and legal costs applicable when buying property in Kenya.
Taxes Applicable When Purchasing Property in Kenya
1. Stamp Duty
Stamp Duty is one of the most significant taxes payable when transferring property ownership in Kenya. It is a tax levied on the legal documents involved in the transfer of property. It is governed by the Stamp Duty Act (Cap 480, Laws of Kenya). It is paid to the Kenya Revenue Authority (KRA) and varies based on property location (urban or rural) and the use (commercial or residential):
- Urban areas/ Residential: Stamp Duty is charged at 4% of the property’s purchase price or market value, whichever is higher.
- Commercial Properties: Stamp Duty is charged at 6% of the purchase price or market value.
- Rural or Agricultural Land: The rate is generally 2% of the market value.
N.B. The property’s “market value” is determined by a government valuer from the Ministry of Lands and Physical Planning. It is important to note that stamp duty is payable regardless of the price listed in the sale agreement—the Commissioner’s valuation prevails.
Exemptions and Reliefs from Stamp Duty
- Transfers between spouses and family members (in specific circumstances) may be exempt.
- Transactions involving charitable organizations or public interest entities may qualify for relief upon application to the Cabinet Secretary for Lands.
- Transactions or transfer of land for the construction or expansion of educational institutions. (Stamp duty shall become payable if such land reverts to any other use)
- The purchase of a house by a first-time home owner under the affordable housing scheme.
2. Value Added Tax (VAT)
VAT is charged at 16% on the supply of taxable goods and services in Kenya. However, in real estate:
- Residential land and buildings are generally exempt from VAT.
- Commercial buildings and properties are subject to VAT at 16%. In David Mwangi Ndegwa (Respondent) v. Kenya Revenue Authority (Appellant) (KRA), Civil Appeal No. 65 of 2019, the Court of Appeal (the Court), on 21 March 2025, ruled that the sale of commercial property is subject to value-added tax (VAT) at the standard rate of 16%.
- VAT may also apply to additional charges related to the property purchase, such as legal fees payable to the vendor’s advocate, handling charges for financed purchases, and transfer or allotment of shares in property management companies (e.g., apartments or gated communities).
Legal due diligence must confirm whether VAT is applicable, especially in developer-led or off-plan sales.
3. Capital Gains Tax (CGT)
This tax applies to the seller and is calculated on the net gain from the sale of property. It is governed by the Income Tax Act (Cap 470).
Capital Gains Tax is paid by the seller on any profit made from the sale of property, but it’s an important consideration for buyers negotiating prices.
- The CGT rate is 15% of the net gain (difference between the sale price and the original purchase price).
- While the buyer does not pay CGT directly, it affects the overall transaction costs and pricing.
How to Compute Capital Gains Tax
Net Gain = (Transfer value – Incidental Costs on Transfer) – Adjusted Cost (Acquisition Cost + Incidental Costs on Acquisition + Any enhancement Cost).
Exemptions on Capital Gains Tax
- Income that is taxed elsewhere, as in the case of property dealers
- Issuance by a company of its shares and debentures
- Transfer of property for the purpose only of securing a debt or a loan
- Transfer by a creditor for the purpose only of returning property used as security for a debt or a loan
- Transfer by a personal representative of any property to a person as beneficiary during the administration of the estate of a deceased person.
- Transfer of assets between spouses;
- Transfer of assets between former spouses as part of a divorce settlement or a bona fide separation agreement;
- Transfer of assets to immediate family;
- To a company where spouses or a spouse and immediate family hold 100% shareholding;
- A private residence if the individual owner has occupied the residence continuously for the three years immediately before the transfer concerned
- Transfer of property as a result of internal restructuring within a group that has existed for at least 24 months and does not involve a transfer of property to a third party.
4. Land Rates and Land Rent
Land Rates are annual property taxes imposed by county governments to fund local infrastructure and services. For example, in Nairobi City County, the property tax rate is 0.115% of the property value for residential properties.
Land Rent applies to leasehold properties and is paid annually to the national government or local authorities. The amount varies depending on the property’s location and size.
Buyers should verify that all land rates and land rent have been paid by the seller to avoid inheriting unpaid liabilities.
5. Legal Fees (Advocate Fees)
Legal fees cover the cost of engaging an advocate to conduct due diligence, prepare and review sale agreements, and facilitate the transfer process at the Lands Registry.
Fees typically range from 1% to 3% of the property value, depending on the complexity of the transaction and the value of the property.
The Advocates Remuneration (Amendment) Order, 2014, regulates these fees, but clients may negotiate within the prescribed limits.
VAT at 16% is also charged on legal fees.
Additional disbursements may include charges for obtaining clearance certificates, consent to transfer, photocopying, printing, and transport, which can range from Kshs 5,000 to 100,000 depending on the transaction.
6. Title Registration Fees
Registration fees are payable to the Lands Registry for registering the property title in the buyer’s name.
The registration fees are for activities such as the transfer Registration Fee, Title Deed or Lease Document Preparation, Parcel Map (RIM extract), and Mutation Forms / Survey Plan (if a subdivision is involved).
The fees are relatively low and may range from Kshs 10,000 to Kshs 30,000, depending on the property’s size, use, and location.
7. Valuation Fees
Valuation is mandatory for stamp duty assessment. The government or private registered valuer’s fees are guided by the Valuers Act Cap 532.
Valuation Fee Guide:
- Standard Rate: 0.25% to 1.0% of the market value.
- Minimum Valuer’s Fee: Kshs 10,000 (plus VAT and disbursements).
Buyers can engage private valuers for additional reports to verify pricing or investment feasibility.
8. Disbursements and Other Hidden Costs
- Notarization and Commissioning of Documents
- Courier and Filing Costs
- Bank Charges (for escrow or trustee accounts)
- Cost of preparing affidavits (e.g., spousal consent)
- Foreign Exchange (if buyer/seller is overseas)
- Survey Fees (for land demarcation).
Conclusion
When purchasing property in Kenya, buyers must budget for several taxes and legal costs beyond the purchase price. These include Stamp Duty, VAT (for commercial properties), legal fees, registration fees, consent to transfer, valuation fees, and ongoing taxes such as land rates and land rent. Understanding these costs is crucial for both commercial and residential property transactions to avoid surprises and ensure compliance with Kenyan property laws. Engaging a qualified advocate is advisable to navigate the legal complexities and ensure all statutory obligations are met efficiently.
At Njaga & Co Advocates, we are your trusted partners in navigating Kenya’s property acquisition process. Whether you are buying commercial or non-commercial property, we ensure every aspect of the transaction is handled with precision and compliance.
How We Can Assist You:
- Legal Guidance: From drafting sale agreements to verifying property titles, we offer expert legal advice to protect your interests.
- Due Diligence: We conduct comprehensive land searches, rate clearances, and document verification to ensure a smooth transaction.
- Tax Compliance: We guide you through taxes like stamp duty, capital gains tax, and VAT, ensuring you meet all obligations seamlessly.
- Registration Support: Our team facilitates the registration of property ownership and title deed preparation with efficiency.
- Foreign Buyer Assistance: For international clients, we help navigate approvals and leasehold requirements.
With our expertise, you can move forward confidently in securing your dream property without the stress of legal complications. Contact us today for personalized, professional support in your property transaction. Let’s make your investment journey seamless and secure!
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult a qualified advocate for personalized legal guidance.
