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Centre for Affordable Housing Finance in Africa
  • LEGAL, POLICY AND INSTITUTIONAL REVIEW OF THE AFFORDABLE HOUSING SECTOR IN KENYA
  • QUICK LINKS TO SEARCH FOR THE SOURCE REGULATORY DOCUMENTS
  • BILLS SCHEDULE
  • NEW DEVELOPMENTS
  • PLEASE SHARE YOUR COMMENTS & FEEDBACK
  • 1. SUMMARY of RECOMMENDATIONS
    • High Level Findings / Recommendations
    • Overall Policy & Regulatory Framework Recommendations
    • Land assembly, land acquisition, title, and registration of land tenure
    • Physical Planning
    • Construction and Maintenance
    • Financing (investment, rental, taxation)
  • 2. HOUSING VALUE CHAIN
    • i. Land assembly, Land Acquisition, Title and Registration of Land Tenure
    • ii. Physical Planning
    • iii. Construction and Maintenance
    • iv. Financing (investment, rental, taxation)
  • 3. INSTITUTIONS INVOLVED IN REGULATION OF HOUSING
    • i. Key National Government Ministries
    • ii. Secondary National Government Ministries
    • iii. County Governments
    • iv. Judiciary
    • v. Professional regulatory and advocacy bodies
  • 4. OVERARCHING POLICIES AND CONTEXT
  • 5. LAND ASSEMBLY, LAND ACQUISITION, TITLE AND REGISTRATION OF TENURE
  • 6. PHYSICAL PLANNING
  • 7. CONSTRUCTION AND MAINTENANCE
  • 8. HOUSING INVESTMENT, FINANCE & TAXATION
    • 8.1 Capital Markets and Wholesale Finance (Equity and Debt)
    • 8.2 Retail Finance
    • 8.3 Financial regulation of rental markets
    • 8.4 Taxation
  • ANNEX A: LAWS / POLICIES / REGULATIONS GOVERNING THE BREADTH OF THE HOUSING VALUE CHAIN
    • 1. Constitution of Kenya 2010
    • 2. Housing Act, 1953 Cap 117 (Revised in 2012)
    • 3. Housing Bill, 2021
    • 4. Sessional Paper No. 3 of 2016 on National Housing Policy
    • 5. Affordable Housing Act 2024
    • 6. Draft Affordable Housing Regulations, 2024
    • 7. The Economic and Social Rights Bill 2022
  • ANNEX B: LAWS / POLICIES / REGULATIONS GOVERNING LAND ASSEMBLY / ACQUISITION / TITLE / TENURE
    • 1. Land Act, No. 6 of 2012
    • 2. Land Registration Act, No. 3 of 2012
    • 3. Idle Land Taxation Policy 2018
    • 4. Community Land Act. No. 27 of 2016
    • 5. Sessional Paper No. 3 of 2009, the National Land Policy
    • 6. National Land Commission Act, No. 5 of 2012
    • 7. National Land Commission (Investigation of Historical Land Injustices) Regulations, 2017
    • 8. National Land Commission (Amendment) Bill, 2023
    • 9. Land Control Act (Cap 302), 1967
    • 10. Land Control Bill, 2023
    • 11. Environment and Land Court Act No. 19 of 2011
    • 12. Survey Act No. 25 of 1961 (Cap 299)
    • 13. Land Registration (General) Regulations, 2017
    • 14. Land Registration (Registration Units) Order, 2017
    • 15. Sectional Properties Act, No. 21 of 2020
    • 16. Land (Amendment) Bill 2022
  • ANNEX C: LAWS / POLICIES / REGULATIONS GOVERNING PHYSICAL PLANNING
    • 1. Sessional Paper No. 1 of 2017 on National Land Use Policy
    • 2. National Land Use Policy Implementation Monitoring and Oversight Tool 2022
    • 3. Kenya National Spatial Plan (2015-2045)
    • 4. Physical and Land Use Planning Act, No. 13 of 2019
    • 5. Physical and Land use Planning (Planning fees), Regulation 2021
    • 6. County Spatial Planning Guidelines, 2018
    • 7. Nairobi City Development Ordinances and Zones Guidelines 2004
    • 8. Nairobi Integrated Urban Development Master Plan (2014-2030)
    • 9. Physical Planning Handbook 2008
    • 10. Sessional Paper No. 10 of 2014 on The National Environment Policy
    • 11. Urban Areas and Cities Act, No. 13 of 2011
    • 12. Physical Planners Registration Act, No. 3 of 1996
    • 13. Export Processing Zones Act, 1990 (Cap 517)
    • 14. Investment Promotion Act, No. 6 of 2004
    • 15. Special Economic Zones Act, No. 16 of 2015
    • 16. Nairobi City County Regularization of Development Act No. 3 of 2015
    • 17. Nairobi City County Community and Neighbourhood Associations Engagement No. 4 of 2016
    • 18. Sectional Properties Regulations, 2021
    • 19. Nairobi City County Development Control Policy
  • ANNEX D: LAWS GOVERNING CONSTRUCTION AND MAINTENANCE
    • 1.Local Government (Adoptive ByLaws) Building Order, 1968 and The Local Government (Adoptive By-Laws
    • 2. National Building Code, 2024
    • 3. National Construction Authority Act, No. 41 of 2011
    • 4. National Construction Authority Regulations, 2014
    • 5. NCA Code of Conduct for the Construction Industry, 2020
    • 6. National Construction Authority (Defects Liability) Regulations, 2020
    • 7. Standards Act, 1974 (Cap 496)
    • 8. Buy Kenya-Build Kenya Strategy 2017
    • 9. Sessional Paper No. 1 of 2013 National Building Maintenance Policy for Kenya
    • 10. National Risk Disaster Management Bill 2023
    • 11. Kenya National Climate Change Response Strategy 2010
    • 12. Sustainable Waste Management Act 2022
    • 13. Forest Conservation and Management Act, No. 34 of 2016
    • 14. Forests (Harvesting) Rules, 2009
    • 15. Public Health Act, 1921 (Cap 242)
    • 16. Public Health (Drainage and Latrine) Rules, 1948
    • 17. Mining Act, No. 12 of 2016
    • 18. Persons with Disabilities Act, No. 14 of 2003
    • 19. The Climate Change (Amendment) Act, 2023
    • 20. Water Act No. 43 of 2016
    • 21. Environmental Management and Coordination Act, No. 8 of 1999
    • 22. Environmental (Impact Assessment and Audit) Regulations, 2003
    • 23. Environmental Management and Co-ordination (Water Quality) Regulations, 2006
    • 24. Environmental Management and Coordination (Noise and Excessive Vibration Pollution) (Control) Re
    • 25. Energy Act No. 1 of 2019
    • 26. Proposed Climate Change (Green & Resilient Buildings) Regulations 2023
    • 27. The National Construction Authority (Amendment) Bill 2022
    • 28. The Water (Amendment) Bill, 2023
    • 29. Persons with Disabilities Bill, 2023
    • Case Law
  • ANNEX E: LAWS AND POLICIES RELATING TO PROFESSIONALS IN HOUSING
    • 1. Architect and Quantity Surveyor Act, 1933 (Cap 525)
    • 2. Architects and Quantity Surveyors By-Laws, 1959
    • 3. Competition Act, No. 12 of 2010
    • 4. Engineers Act, No. 43 of 2011
    • 5. Engineering Rules, 2019
    • 6. Engineers (Scale of Fees for Professional Engineering Services) Rules, 2022
    • 7. Engineering Technology Act, No. 23 of 2016
    • 8. Valuers Act, 1985 (Cap 532)
    • 9. The Construction Project Managers and Construction Managers Bill 2023
    • 10. The Real Estate Management Bill 2023
    • 11. The Physical and Land Use Planning (Outsourcing of Professional Services) Regulations, 2021
    • 12. The Valuers Bill, 2022
  • ANNEX F: LAWS GOVERNING FINANCING / RENTAL / TAXATION
    • 1. Retirement Benefits Act, No. 3 of 1997
    • 2. Building Societies Act, 1956 (Cap 489)
    • 3. Banking Act, 1989 (Cap 488)
    • 4. Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations, 2013
    • 5. Central Bank of Kenya Act 1966 (Cap 491)
    • 6. Estate Agents Act, 1984 (Cap 533)
    • 7. Sacco Societies Act, No. 14 of 2008
    • 8. Sacco Societies (Deposit-Taking Sacco Business) Regulations 2010
    • 9. Sacco Societies (Non-Deposit Taking Business) Regulations 2020
    • 10. Sacco Societies (Amendment) Act, 2022
    • 11. Sacco Societies (Specified Non-Deposit Taking Business) (Levy) Order, 2023
    • 12. Cooperative Societies Act, No. 12 of 1997
    • 13. Employment Act, No. 11 of 2007
    • 14. Guarantee (House Purchase) Act, 1967 (Cap 462)
    • 15. Civil Servants (Housing Scheme Fund) Regulations, 2004
    • 16. Housing Scheme Fund Regulations, 2018 (Legal Notice No. 238 of 2018)
    • 17. Income Tax Act (Cap 470)
    • 18. Finance Act, No. 22 of 2022
    • 19. Public Finance Management Act, No. 18 of 2012
    • 20. Unclaimed Financial Assets Act, No. 40 of 2011
    • 21. Proceeds of Crime and Anti-Money Laundering Act, No. 9 of 2009
    • 22. Kenya Deposit Insurance Act, No. 10 of 2012
    • 23. Mortgages (Special Provisions) Act, 1968 (Cap 304)
    • 24. Auctioneers Act No. 5 of 1996
    • 25. Auctioneers Practice Rules 2009
    • 26. Auctioneer Rules, 1997
    • 27. Rent Restriction Act, 1959 (Cap 296)
    • 28. Stamp Duty Act, 1958 (Cap 480)
    • 29. Stamp Duty (Valuation of Immovable Property) Regulations 2020
    • 30. Value Added Tax Act, No. 35 of 2013
    • 31. Public Private Partnerships Act, No. 14 of 2021
    • 32. County Governments Act, No. 17 of 2012
    • 33. National Rating Act, 2024
    • 34. Distress for Rent Act, 1938 (Cap 293)
    • 35. Landlord and Tenant Bill, No. 3 of 2021
    • 36. The Cooperatives Bill, 2024
    • 37. The Central Bank of Kenya (Mortgage Refinance Companies) Regulations, 2019
    • 38. Finance Act No. 4 of 2023
    • 39. Tax Laws (Amendment) Act 2024
    • 40. Tax Procedures (Amendment) Act 2024
  • ANNEX G: OFF-PLAN HOUSING DEVELOPMENTS
  • ANNEX H: IN-DEPTH ANALYSIS ON HANGING REGULATIONS
    • 1. Housing Bill, 2021
    • 2. Landlord and Tenant Bill, No. 3 of 2021
    • 3. Retirement Benefits (Mortgage Loans) (Amendments) Regulations, 2020
    • 4. Housing Scheme Fund Regulations, 2018 (Legal Notice No. 238 of 2018)
    • 5. Housing Scheme Fund Regulations, 2018 (Legal Notice No. 238 of 2018)
    • 6. National Construction Authority (Defects Liability) Regulations, 2020
    • 7. The Finance Bill, 2024
    • 8. The Valuers Bill, 2022
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  1. ANNEX F: LAWS GOVERNING FINANCING / RENTAL / TAXATION

17. Income Tax Act (Cap 470)

The law provides for assessing, charging and collecting income tax, the income to be charged and the administrative and enforcement provisions of tax collection.

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The statute seeks to make provisions for the charge, assessment and collection of income tax; for the ascertainment of the income to be charged; and for the administrative and general provisions relating thereto.

路 Section 3 of the Act is the charging section which requires payment of tax on income including rental income, capital gains tax, and corporate tax.

Residential Rental Income Tax

路 Section 6A of the Income Tax Act (introduced through the Finance Act 2015 and which became effective 1st January 2016) provides for a monthly Residential Rental Income Tax.

路 The Monthly Rental Income Tax is a final tax charged at a flat rate of 10% on gross rent received per month, payable by resident persons (whether individual or company) on rental income earned for the use or occupation of residential property where the rent income is between Ksh 288, 000 to 15 million per annum (equivalent to Ksh 24, 000-1,250,000 per month).

路 No expenses, losses or capital deduction allowances are allowed for deduction from the gross rent.

路 The rental income must be filed online via iTax on or before the 20th of the following month such as where rent is received by January, the returns for the same must be filed on or before 20th of February.

路 Landlords/property owners who earn a rental income below Ksh 288, 000 annually (Ksh 24, 000 monthly) or above Ksh 15 million per year are required to file annual income tax returns and declare the rental income alongside their other incomes for the particular year.

路 Once this tax is paid, it is a final tax and therefore landlords are not expected to declare the same in their annual income tax returns.

路 Persons exempted from this Monthly Rental Income Tax are: non-residents, landlords earning more than Ksh 15 million annually, and taxpayers who wish to remain in the normal tax regime of filing annual income tax returns on the rental income and who may choose to do so by writing to the Commissioner of Domestic Taxes, KRA.

路 On the other hand, the rental income under the normal tax regime is calculated under an individual graduated scale or a corporate tax rate of 30% of the total rent received for the year. Section 15 of the Income Tax Act however allows for deduction of expenses incurred to generate the said rent.

Capital Gains Tax (CGT)

路 Capital Gains Tax was reintroduced in Kenya on 1st January 2015 (through the Finance Act 2014 which amended the Eighth Schedule of the Income Tax Act), following its abolition 30 years before (in 1985).

路 Sections 3(2)f, 34(1)j, Paragraph 2 of the Eighth Schedule of the Income Tax Act (Cap 470) provides for imposition of Capital Gains Tax (CGT) as a final tax levied at 15% of the net gain[1] arising from proceeds for transfer of property including land and buildings. The net gain is obtained by deducting the acquisition cost (initial buying price) and related incidental costs of the transaction from the total sale proceeds. Some of the allowable expenses (incidental costs) that are deducted from the sale proceeds for purposes of calculating the net gain for purposes of CGT are: loan or mortgage interest; legal fees; costs of enhancements; valuation costs and advertising costs.

路 The Capital Gains Tax is due on or before the transfer of the property but no later than the 20th day of the month after transfer. The payment is initiated online via iTax.

路 There are some transactions that are however exempt from payment of CGT. These include: transfer of assets between spouses or to immediate family, transfer of property only for the purpose of securing a debt or loan, transfer by a personal representative to a beneficiary under the law of succession, transfer of assets between former spouses upon divorce or judicial separation, transfer of assets to a company where spouses or spouse and immediate family have full shareholding, and a private residence if the individual owner has occupied such residence continuously for the three-year period immediately prior to the particular transfer.

路 The Kenya Revenue Authority (KRA) in September 2019, introduced additional requirements to the process of property transfer by requiring verification and approval of all transactions declared as exempt from Capital Gains Tax.

路 The effect of the introduction of iTax (online) payment of CGT was that the I-Tax system would not permit the payment of Stamp Duty on a transfer unless and until the CGT was also paid. In effect therefore, and as a matter of practice, there was a requirement on a property purchaser to present an approved CGT acknowledgement slip as proof of payment of CGT or exemption (if any) before one could make payment for stamp duty to enable transfer of their property.

路 Notably, CGT payment is an obligation of the seller, whereas stamp duty payment is an obligation of a buyer/purchaser. In effect, therefore, a purchaser would have been held hostage by the failure of the seller to honour their obligation of paying CGT and therefore delay the transfer process.

路 Another consequence of this directive is that CGT can now be paid after transfer/registration of property transfer, but on or before the 20th day of the month after that when the transfer has been completed.

路 Section 20(1)c of the Income Tax Act exempts real estate investment trusts from income tax except for the payment of withholding tax on interest income and dividends as a resident person as specified in the Third Schedule of the Act.

路 Importantly however, the Kenya Revenue Authority is yet to publish regulations that will formally exempt subsidiaries of real estate investment trusts (REITs) from income tax to accord with the said section 20(1)(c) of the Income Tax Act despite the move to exempt the operating units of the REITS starting three years ago. Accordingly, these regulations need to be fast-tracked to enable REITS to take advantage of this tax incentive.

路 Section 20(1)d of the Income Tax Act, introduced in November 2019 vide the Finance Act No. 23 of 2019, exempts investee companies of Real Estate Investment Trusts (REITS) from income tax.

路 The above tax exemptions are incentives designed to encourage the growth of real estate investment funds which allow the public to gain exposure to the property market without requiring large cash investments. The funds issue units which trade like stocks and break down ownership of the underlying assets to enable minimum investments of a few thousand shillings.

路 Section 30A of the Act (introduced through amendments in 2018) provides for affordable housing relief for a year of income to residential individuals eligible for and who have applied for or are awaiting allocation of a house or those saving for a purchase under the affordable housing scheme. The effect of the tax relief is to reduce the amount of tax otherwise payable by a purchaser and therefore serves to avail more disposable income for the taxpayer/purchaser thereby increasing demand.

路 This tax relief is however only granted once. Under section 3 of the Third Schedule under (Head A-Resident Personal Relief), the affordable housing relief is set at 15% of the employee鈥檚 contribution but shall not exceed Ksh. 108, 000 per year.

路 Section 59 of the Act empowers the Commissioner of Domestic Taxes to issue a notice to an occupier of premises to furnish the Commissioner with a return containing the name and address of the owner or lessor of the premises; and a full and true statement of the rent of any consideration payable for the said occupation. These powers certainly help the revenue authority in assessing the tax to be assessed against the owner/lessor of the premises especially where they are under-declaring or failing to remit taxes.

路 Some of the exemptions to payment of income tax stipulated under Part 1 of the Act include: income from the National Housing Development Fund (section 57); and the amount withdrawn from the National Housing Development Fund to purchase a house by a contributor who is a first-time homeowner (section 59).


[1] This CGT rate of 15% of net gain became effective 1 July 2022 following the enactment of the Finance Act 2022 which increased it from the prevailing rate of 5%.

路 The process of payment of CGT is done through presentation of a by the taxpayer/seller to KRA accompanied by a copy of the sale/transfer agreement, proof of incidental costs related to the acquisition and transfer of the property, copy of title deed or ownership document for the property, report from a registered valuer for property transactions between related parties, and any other document that the Commissioner of Taxes may require.

路 Upon legal challenge, the High Court in made a declaration that the requirement by KRA for simultaneous payment of both stamp duty and CGT by a charge pursuant to statutory power of sale was illegal and made an order compelling KRA to allow payment of stamp duty on an instrument of transfer without requiring payment of CGT or an acknowledgement number for payment of CGT.

路 This decision was affirmed on appeal in , where the Court of Appeal held that to require a purchaser to pay CGT first without ascertaining whether there is in fact a capital gain is unreasonable and unfair. The court also held that a bank as a chargee is under no obligation to pay capital gains tax when exercising a statutory power of sale since it is not a proprietor of the charged land but rather only has proprietary rights over the charge. The appellate court was of the view that even in executing a transfer following exercise of statutory power of sale, the chargee/bank is usually but a nominee and never the owner/proprietor of the property as to be liable to pay stamp duty.

路 Following the Court of Appeal decision, KRA published a dated 23rd March 2020 dispensing with the requirement to present a CGT acknowledgement slip before processing of stamp duty payment.

completed CGT 1 form
Kenya Bankers Association v Kenya Revenue Authority [2018] eKLR
Kenya Revenue Authority v Kenya Bankers Associations [2020] eKLR, Civil Appeal 213 of 2018
Notice
https://new.kenyalaw.org/akn/ke/act/1973/16/eng@2024-12-27