Ultimate Guide to Monthly Residential Taxation of Rental income in Kenya

Residential rental income, also known as Monthly Rental Income (MRI) refers to income derived from renting out residential properties for use or occupation. This tax applies to individuals and corporates with residential property only.

Residential property owners generating an average monthly income of between Sh24,000 and Sh1.25 million are under the “simplified” process required to pay tax at the rate of 7.5 percent of the gross earnings.

The current rate took effect in January following changes in the Finance Act 2023 that lowered it from the previous 10 percent.

The return must still be filed monthly. No expenses, losses or capital allowances are allowed for deduction from the gross rent at the time of filing the return. Therefore, a landlord earning gross rent of Ksh. 100,000 in a month will be required to pay rental income tax at the rate of 7.5%, that is 7.5%*100,000=7,500.

Taxpayers within this bracket who wish to remain in annual rental income tax regime may do so by requesting the Commissioner in writing. The MRI return is filed on iTax or using the new KRA M-service App , on or before the 20th day of the following month. For example, rent received in January is declared and tax paid on or before 20th February.

Further, any month that the landlord does not receive any rent, he/she is required to file a NIL return. You can pay via Mpesa by using KRA PIN number 572572 and the account Number been the Payment Registration Number quoted at the top right corner of the generated payslip.

Landlords with rental income below Kshs. 288,000 or above Kshs. 15 million per year and non-residents shall file annual income tax returns and declare rental income together with income from other sources. 

Residential rental income is final tax. This means that, any income from rent that is subject to residential rental income tax is not liable to any other tax under the Act and therefore, persons are not required to declare the same in their annual income tax returns.

Late filing of MRI returns attracts a penalty of 2,000 or 5% of the tax due whichever is higher for individuals and 20,000 or 5% of the tax due whichever is higher for corporates and subsequent interest of 1% per month on the unpaid tax until payment is made in full.

Penalty on late payment: 5% of the tax due and late payment interest of 1% per month on the unpaid tax until the tax is paid in full.

As you engage in real estate, its always important to consider the impact of taxes on your transactions. To remain compliant, please consult your tax or legal expert. For more information, please call David Ndiritu on +254 721 949 580 or via email on dndiritu@hisibaticonsuting.com