Stamp duty payment for real estate transactions in Kenya
The Lands Act and Registered Lands Act state that legal instruments such as leases, transfers, charges and mortgages will not be accepted unless they are duly stamped. During the process of buying and selling of real estate properties, one step involves the buyer or their advocate planning for the property to be assessed for stamp duty by a Valuer and subsequently stamping of transfer documents. Recent aamendment to the Stamp Duty Act includes provisions to allow the Collector of Stamp Duties to refer a valuation of property for Stamp Duty to a registered and practicing valuer and not necessarily a government valuer.
Stamp Duty on sale of Property in Kenya.
Stamp Duty is calculated on the property value or the purchase price agreed upon; whichever is higher. The rate varies by location of the property and is:
Â· 4% for land/property within a municipality
Â· 2% for agricultural land or property outside a municipality
Â· 1% if a property is registered as a company and transfer is by way of shares rather than title
For instance, an investor buying a Sh10 million house needs to part with Sh400,000 as stamp duty costs. Through the Tax Laws (Amendment) Bill, the government has amended the Stamp Duty Act to exempt individuals buying their first homes from paying stamp duty.
Stamp Duty on Property Leases
Stamp duty is levied on property leases at varying rates, depending on the lease duration. Stamp duty is levied at a flat rate of 1% on period leases up to 3 years, and at a flat rate of 2% on period leases exceeding 3 years. The highest figure used in cases of fluctuating rents. Hence, for an annual rent of Sh1 million, duty of Sh10,000 is paid.
Stamp duty on Mortgages in Kenya
Stamp duty charge for mortgages in Kenya is payable at the rate of 0.1% of the amount secured by any principal security document. Stamp duty is payable on supplemental security documents at the nominal rate of at Sh2 per every Sh1,000.
One can apply for stamp duty exemption in Kenya when:
Â· Transfer to held by family to a limited liability company wholly held by members of the same family.
Â· Transferring between associated companies.
Â· Transfer between spouses.
Â· Transfer in favour of any body established for charitable purposes.
How to pay stamp duty in Kenya:
1. log on to the iTax portal.
2. Under the payment menu, select â€œPayment Registrationâ€.
3. Select the tax head applicable as agency revenue, and the subhead as Stamp Duty.
4. Fill in the applicable details all the way to the end and submit after which you get the payment slip.
5. Thereafter, make the payment either through the bank or using the M-PESA PayBill Number 572572.
The Stamp Duty Act states that documents must be stamped within 30 days of acquisition or invite a penalty. For transactional instruments that are prepared locally, the tax should be paid within 30 days. However, for documents executed abroad and sent for registration locally, Stamp Duty must be paid within 30 days of receiving the documents. If, for whatever reason payments exceed the charged amounts, applications for refunds should be made within one year.
When Stamp Duty is not paid within that time frame, this results in the invalidity of the relevant transaction, any agreement signed between the parties becomes null and void, and the same is inadmissible in a Court of Law as evidence. Failure to pay the revenue also leads to a fine that is assessed at five percent (5%) of the principal assessed Stamp Duty for every quarter from the date of the instrument.
After payment of stamp duty, the real estate agent, conveyancing lawyer or the busier lodges the property for registration in favour of the buyer. After the registration process, the sellerâ€™s advocate is legally permitted to release the full proceeds of the sale to the seller. Consequently, the buyer is officially handed over possession of the property and becomes the new legal owner.
You can download a copy of the Stamp duty in Kenya Act here.
If you are unfamiliar with the taxation process, we recommend you find a good tax advisory firm that can assist you with advice and assist you with completing needed transaction. We try to offer our clients the most comprehensive and dedicated service possible at no extra cost. Where we are unable to help, we then recommend that you instruct the services of another firm or advocate to receive appropriate legal advice and representation throughout the sales process.