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News and Analysis
December 20, 2024
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Taxes and fees significantly affect the total amount you'll pay or receive in land transactions, and not being aware of these costs can lead to unexpected financial strain. You may find yourself over budget, scrambling for extra funds, or even forced to cancel your plans altogether.
For instance, if you're looking to buy a plot worth Ksh2 million, you might assume that’s the total amount needed. However, when incidental costs like stamp duty, legal fees, and other taxes are factored in, your total can quickly rise to around Ksh2.2 million. This 10% increase can throw off your budget and delay your plans.
Selling land without accounting for these taxes can also put you at a disadvantage. You might agree to sell your land for Ksh3 million, expecting a solid return, only to find that after paying taxes, commissions, and other charges, you walk away with just Ksh2.5 million. You risk underselling your property or misjudging your profit margin if you're unaware of these deductions.
This article will explore all the taxes and fees you should know when buying or selling land in Kenya so you can make more informed financial decisions and avoid unwelcome surprises.
Read Also: How to Safely Buy Land in Kenya
Stamp duty is a tax levied on written documents that transfer ownership, such as title deeds, when buying land. In land transactions in Kenya, the buyer is responsible for paying this tax.
The amount of stamp duty you’ll pay depends on the location and value of the property. Properties within municipalities such as cities and major towns attract a stamp duty rate of 4%, while properties in rural areas, outside municipalities, are taxed at 2%.
If you buy a piece of land valued at Ksh5 million in Nairobi, you’ll pay 4% stamp duty, which amounts to Ksh200,000. For a similar piece of land in a rural area, the stamp duty would be 2% or Ksh100,000.
Typically, stamp duty is unavoidable in most cases. However, there are exceptions, such as transfers between legally married couples, transfers to next of kin as inheritance, or when land is transferred to tax-exempt organisations like charitable and religious entities.
A title search is an essential step in the property purchasing process. It involves investigating the land ownership details to ensure the seller is the legitimate owner. The search also reveals if the title has any caveats or charges, such as outstanding court cases and liens, which could affect the sale.
To conduct a title search, you’ll need a copy of the land's title deed from the seller. The cost of conducting a title search is Ksh500 via online platforms like Ardhisasa or E-citizen. Alternatively, according to the State Department for Lands and Physical Planning, you can do a manual search at the land offices for free.
It’s also wise to conduct a final search after completing the transaction to confirm that the title is now in your name.
Before transferring land ownership, both the buyer and seller need clearance from the Land Control Board (LCB), which ensures that the sale is mutually agreed upon without coercion.
After reviewing the transaction, the LCB will issue a consent letter, which can take up to a month. The standard cost for LCB consent is Ksh1,000. If you need the process expedited, you may request a special sitting and pay a higher fee.
Once consent is obtained, you will need to pay title deed transfer and registration fees. These fees include a Ksh500 registration fee paid at the land registry.
An additional Ksh5,000 is charged for the final issuance of the title, although fees may vary depending on your county.
If the property you’re buying is leasehold land, you’ll need to pay annual land rent to the government. Land rent is a levy imposed on leasehold properties, where rent is determined when the grant is issued. This payment is directed to the Ministry of Lands and Physical Planning.
The amount of land rent depends on factors such as the size, location, and demand for the land. It’s important to note that freehold land does not attract land rent, making it more appealing for some buyers. However, if you're buying leasehold land, this rent must be paid annually.
Before stamp duty is calculated, the property must undergo a valuation by a government appraiser to determine its market value. You may also have to opt for an independent appraiser to ensure you’re paying a fair price for the property.
The government valuation is mandatory and costs Ksh500. An independent appraisal can range upwards of Ksh10,000, depending on the property size, location, and the appraisal company you use.
It’s also important to be aware of withholding tax, which applies to professional fees such as valuation. If you hire a third-party valuer, you are required to deduct a 5% withholding tax from their payments.
Legal representation is essential for property transactions to ensure everything is above board. Lawyers help with contract negotiations, due diligence, and document verification. The legal fees depend on the value of the transaction, starting at 2% of the property’s value or a minimum of Ksh35,000. Additionally, a 16% VAT is charged on legal fees.
If you’re working with a real estate agent, you will also need to budget for their commission, which typically ranges from 2-5% of the sale price. Agent fees are negotiable, but it’s important to remember that withholding tax applies here, and 5% must be deducted from their fees.
Read Also: Money and Me: Buying Land with No Salary
Here’s a breakdown of the taxes and fees you would need to pay when purchasing a Ksh 2 million piece of land:
Total Cost When Buying
Stamp Duty: Ksh 80,000
Title Search: Ksh 500
LCB Consent: Ksh 1,000
Title Deed Transfer: Ksh 5,500
Valuation Fees: Ksh 10,500
Legal Fees: Ksh 46,400
Agent Commission: Ksh 60,000
Total: Ksh 203,900
Land rates are annual taxes levied by county governments based on the value of your land. The amount is typically determined by the county government, depending on the location and size of your property.
When selling your land, it is crucial to clear any outstanding balances, as buyers will need a Land Rates Clearance Certificate from the county government before completing the purchase. This certificate serves as proof that all rates, including any interest accrued, have been fully paid.
The cost of obtaining a clearance certificate varies by county. For instance, Nairobi County charges Ksh10,000 for the certificate, according to Kenya's Investment Facilitation Portal, eRegulations.
If you have a large plot of land but only wish to sell a portion, or you want to sell it in smaller sections, you’ll need to go through the process of partitioning or subdividing the land. This involves hiring a licensed surveyor and a physical planner to divide the land according to your requirements.
The costs associated with subdivisions vary depending on your location, the number of subdivisions, and the professionals you hire. According to the Survey (Amendment) Regulations, 2023, consultancy fees for land surveyors cost Ksh5,000 per hour, while processing and approval of mutation surveys cost Ksh600 per portion. In addition, you'll need to pay a withholding tax of 5% on the surveyor’s fees.
Before you can legally transfer land ownership, you must obtain consent from the relevant authorities. The most common consent required is from the Land Control Board (LCB), which ensures that both the seller and buyer are willingly entering into the transaction. LCB consent costs typically start at Ksh1,000.
Before transferring ownership of leasehold property, you may also need approval from the National Land Commission (NLC).
Before selling your land, knowing its current market value is essential to ensure you don’t undersell or overprice it. You will need to hire a private appraiser to assess the property and provide an accurate valuation. This process helps you understand the property's worth and can be used for tax assessments and buyer negotiations.
Appraisal fees depend on the location and size of the land, and typically, you will also need to deduct a 5% withholding tax from the valuer’s fees.
Capital Gains Tax (CGT) is a tax you must pay on the profit earned from selling property. The tax is calculated as 15% of the net gain, which is the difference between the sale and acquisition prices. This tax is payable by the seller.
There are a few exemptions from Capital Gains Tax, including transfers between spouses and transfers of inherited property.
When selling land, here’s the breakdown of taxes and fees you would incur:
Total Cost When Selling:
Land Rates Clearance Certificate: Ksh 10,000
Subdivision/Partitioning Fees: Ksh 26,200
Valuation Fees: Ksh 10,500
LCB Consent: Ksh 1,000
Capital Gains Tax: Ksh 75,000
Legal Fees: Ksh 46,400
Total: Ksh 169,100
Read Also: How to Get Conned When Buying Land in Kenya
When buying or selling land in Kenya, the process goes far beyond simply exchanging money for property. For instance, comparing professional fees for lawyers, surveyors, appraisers, and agents ensures you get the best value while protecting your interests.
Likewise, working with licensed individuals to guarantee that the transaction is legitimate and all required steps are followed.
Finally, pay all taxes and levies directly to the responsible government agencies, such as the Kenya Revenue Authority (KRA) and the county government, to avoid penalties, future complications, or paying non-existent taxes.
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