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EIGHTH SCHEDULE

PART I :   ACCRUAL AND COMPUTATION OF GAINS FROM PROPERTY OTHER THAN INVESTMENT SHARES TRANSFERRED BY INDIVIDUALS 

(Sections 3(2)(f) and 15(3)(f))

Interpretation

1.  
(1) In this Part, unless the context otherwise requires - 
"adjusted cost" has the meaning assigned thereto in paragraph 8; 
"company" includes - 
  • (a) a member’s club deemed under section 21(1) to be carrying on a business; 
  • (b) a trade association that elects under section 21(2) to be deemed to carry on a business; 
"consideration" means consideration in money or money’s worth; 
"individual" includes more than one individual or an unincorporated association or body of individuals including trustees and partners;
"land" includes - 
  • (a) buildings on land and anything attached to land or permanently fastened to anything attached to land (whether on or below the surface); 
  • (b) standing timber, trees, crops and other vegetation growing on land; and 
  • (c) land covered by water; 
"marketable security" includes a security capable of being sold and stock as defined in section 2 of the Stamp Duty Act; 

"property" - 
  • (a) in the case of a company has the meaning assigned thereto in the Interpretation and General Provisions Act, and includes property acquired or held for investment purposes but does include a road vehicle; 
  • (b) in the case of an individual means – 
    • (i) land situated in Kenya and any right or interest in or over that land, and
    • (ii) a marketable security situated in Kenya, other than an investment share as defined in Part II of this Schedule;
"transfer" has the meaning assigned thereto in paragraph 6; 
"transfer value" has the meaning assigned thereto in paragraph 7. 

(2) For the purpose of this Schedule - 
  • (a) a reference to a transfer of property includes a reference to a part transfer of property; and 
  • (b) there is a part transfer of property where, on a person making a transfer, any description of property derived from the transferred property remains undisposed of. 
(3) For the purposes of this Schedule two persons are "related persons" if - 
  • (a) either person participates directly or indirectly in the management, control or capital of the business of the other; or 
  • (b) a third person participates directly or indirectly in the management, control or capital of the business of both.
 (4) For the purposes of subparagraph (3) a reference to "person" includes -
  • (a) in the case of an individual, a reference to a relative (as defined in section 26(5)) of that person; and 
  • (b) a reference to a company. 
(5) For the purposes of this Schedule - 
  • (a) shares or securities being marketable securities issued by a municipal or a Government authority, or by a body created by that authority, are situated in the country of that authority; and 
  • (b) subject to paragraph (a), shares or securities (being marketable securities) are situated where they are registered and, if registered in more than one register, where the principal register is situated.

Taxation of gains.  

2.
Subject to this Schedule, the income in respect of which tax is chargeable under section 3(2)(f) is the whole of a gain which accrues - 
(a) to a company on or after the 1st January, 1975; or 
(b) to an individual on or after the 13th June, 1975, 
on the transfer on or before the 13th June, 1985, of property situated in Kenya, whether or not the property was acquired, in the case of a company before the 1st January, 1975, and in the case of an individual before the 13th June, 1975. 

Subject to this Schedule, income in respect of which tax is chargeable under section 3(2)(f) is the whole of a gain which accrues to a company or an individual on or after 1st January, 2015 on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January, 2015.   Finance Act, 2014 effective 01 January 2015   Deleted by (Finance Act 2023 wef 1st-July-2023 s28) 
Subject to this Schedule, income in respect of which tax is chargeable under section 3(2)(f) is 
(a)the whole of the gains which accrued to a company, an individual or partnership on or after the 1st January, 2015, on the transfer of property situated in Kenya, whether or not the property was acquired before 1st January, 2015, or 
(b)gains derived from the alienation of shares or comparable interests, including interests in a partnership or trust, if, at any time during the three hundred and sixty-five days preceding the alienation, the shares or comparable interests derived more than twenty per cent of their value directly or indirectly from immovable property situated in Kenya, or 
(c)gains, other than those to which subparagraph (a) applies, derived from the alienation of shares of a company resident in Kenya if the alienator, at any time during the three hundred and sixty-five days preceding such alienation, held directly or indirectly at least twenty per cent of the capital of that company: Provided that for the purposes of this paragraph, the person alienating the shares shall notify the Commissioner in writing where there is a change of at least twenty per cent in the underlying ownership of the property. (Finance Act 2023 wef 1st-July-2023 s28) 

Income not chargeable

3.
  • (1) Income is not chargeable to tax under section 3(2)(f) where, and to the extent that, it is chargeable to tax under any other provision of this Act. 
  • (2) The gain accruing to a company on a transfer of machinery classified in paragraph 7 of the Second Schedule is not chargeable to tax under section 3(2)(f). (Deleted Finance Act 2020- wef-30June2020) 

Computation of gains.

4.
  • (1) The gain which accrues to a person on the transfer of property is the amount by which the transfer value of the property exceeds the adjusted cost of the property. 
  • (2) Where, in computing the gain accruing to a person on the transfer of property, the adjusted cost of the property exceeds the transfer value of the property, the amount of the excess is the loss realized by the person on the transfer of the property. 
  • (3) A gain or loss realized by a person on the transfer of property shall be deemed to be realized by the person at the time of the transfer, whether or not the consideration is payable by installments but a payment by way of interest on a part of the consideration not immediately payable shall not be treated as part of the transfer value of the property. 
  • (4) Debts incurred on the transfer of property which the Commissioner considers to have become bad shall be deemed to be a loss for the purposes of section 15(3)(f) and those provisions shall apply accordingly. 
  • (5) Section 15(2)(e) does not apply in relation to a loss realized by a Person on the transfer of property.

Dealings by nominees, trustees and liquidators, and for the enforcement of securities.

 5.
  • (1) In relation to property held by a person as nominee for another person or as trustee for a person absolutely entitled as against the trustee (or for two or more persons who are so entitled in possession, whether as joint tenants or tenants in common), or as liquidator for a company, this Schedule shall apply as if the property were vested in, and the acts of the nominee, trustee or liquidator in relation to the property were the acts of the person or persons for whom the person is nominee, trustee or liquidator (transfers between the person or persons and the nominee, trustee or liquidator being disregarded accordingly). 
  • (2) Where a person entitled to property by way of security or to the benefit of a charge or encumbrance on property, deals with the property for the purpose of enforcing or giving effect to the security, charge or encumbrance, his dealings with it shall be treated as if they were done through him as nominee by the person entitled to the property subject to the security, charge or encumbrance, and this subparagraph shall apply to the dealings of a person appointed to enforce or give effect to the security, charge or encumbrance as receiver and manager as it applies to the dealings of the person so entitled.

Meaning of transfer.

6.
(1) Subject to this Schedule there is a transfer of property for the purposes of this Schedule – 
  • (a) where property is sold, exchanged, conveyed or otherwise disposed of in any manner whatever (including by way of gift), whether or not for consideration; or
  • (b) on the occasion of the loss, destruction or extinction of property whether or not a sum by way of compensation or otherwise, or under a policy of insurance, is received in respect of the loss, destruction or extinction of the property unless that sum is utilized to reinstate the property in essentially the same form and in the same place within one year of the loss, destruction or extinction of the property or within a longer period of the time approved by the Commissioner; or 
  • (c) on the abandonment, surrender, cancellation or forfeiture of, or the expiration of substantially all rights to, property, including the surrender of shares or debentures on the dissolution of a company. 
(2) There is no transfer of property for the purposes of this Schedule - 
  • (a) in the case of the transfer of property for the purpose only of securing a debt or a loan, or on a transfer by a creditor for the purpose only of returning property used as a security for a debt or a loan; 
  • (b) in the case of the issuance by a company of its own shares or debentures; 
  • (c) by the vesting in the personal representative of a deceased person by operation of law of the property o that deceased person;
  • (d) by the transfer by a personal representative of property to a person as legatee in the course of the administration of the estate of a deceased person; and "legatee" includes a person taking under a devise or other testamentary disposition or an intestacy or partial intestacy whether her takes beneficially or as a trustee; 
  • (e) by the vesting in the liquidator by an order of a court of the property of a company under section 240 of the Companies Act; 
  • (f) by the vesting in the official receiver or other trustee in bankruptcy of the property of a bankrupt under section 57 of the Bankruptcy Act; or
  • (g) by the transfer by a trustee of property, which is shown to the satisfaction of the Commissioner to be subject to a trust, to a beneficiary on his becoming absolutely entitled thereto.
  • (h) by the transfer of an asset between spouses, or former spouses or their immediate family**, as part of a divorce settlement or bona fide separation agreement;Finance Act, 2014 effective 01 January 2015 , Finance Act, 2015effective 1st Jan2016  **, Deleted by Finance Act, 2016effective 9th June2016
  • (h*) by the transfer of assets—
    • (i) between spouses;
    • (ii) between former spouses as part of a divorce settlement or a bona fide separation agreement;
    • (iii) to immediate family;
    • (iv) to immediate family as part of a divorce or bona fide separation agreement; or
    • (v) to a company where spouses or a spouse and immediate family hold 100% shareholding.   Finance Act, 2016effective 9th June2016*
  • (i) by the compensation for property acquired by the Government for infrastructure development which is subject to tax under section 3(2)(i).Finance Act, 2014effective 01 January2015  Deleted by Finance Act, 2015effective 1st Jan2016 
(3) For the purposes of this paragraph, 
“immediate family” means children of the spouses or former spouses.  Finance Act, 2015effective 1st Jan 2016 

Transfer value.

7.
(1) Subject to this Schedule, the transfer value of property shall be computed by reference to those of the following amounts (if any) as are appropriate having regard to the manner of the transfer, namely -
  • (a) the amount of or the value of the consideration for the transfer of the property;
  • (b) sums received in return for the abandonment, forfeiture or surrender of the property; 
  • (c) sums received as consideration for the use of exploitation of the property; 
  • (d) sums received by way of compensation for damage or injury to the property or for the loss of the property; 
  • (e) sums received under a policy of insurance in respect of damage or injury to, or the loss or destruction of, the property;
  • (f) an amount by which the liability of a person to another person entitled to property by way of security or to the benefit of a charge or encumbrance is reduced as a result of dealings with the property for the purposes of enforcing or giving effect to the security, charge or encumbrance, together with an amount received by the person out of the proceeds of those dealings. 
(2) Subject to this Schedule, for the purpose of computing the transfer value of property there shall be deducted the incidental costs to the transferor of making the transfer. 

(3) In a case where no amount is ascertainable under this Schedule as the transfer value of property the transfer value of the property shall be deemed to be nil the market value as determined by the Commissioner*. Finance Act, 2014effective 01 January2015*

Adjusted cost. 

8.
(1) Subject to this Schedule, the adjusted cost of property is - 
  • (a) the amount of or value of the consideration for the acquisition or construction of the property;
  • (b) the amount of expenditure wholly and exclusively incurred on the property at any time after its acquisition by or on behalf of the transferor for the purpose of enhancing or preserving the value of the property at the time of the transfer; 
  • (c) the amount of expenditure wholly and exclusively incurred at any time after the acquisition of the property by the transferor establishing, preserving or defending the title to, or a right over, the property, and 
  • (d) the incidental costs to the transferor of acquiring the property. 
(2) For the purpose of computing the adjusted cost of property, an amount computed shall be reduced by such amounts as have been allowed as deduction under section 15(2). 

(3) Where a company issues to its shareholders shares - 
  • (a) that do not constitute a dividend under section 7(1)(d) or (e), the cost of the shares - 
    • (i) shall be the sum paid for the shares; or 
    • (ii) if no sum is paid for the shares, shall be deemed to be nil, and the shareholder shall allocate, in the manner prescribed, the cost of his existing shares between the old shares and the new shares; or
  • (b) that constitute, wholly or partly, a dividend under either of those paragraphs, the amount which constitutes a dividend shall be treated as part of the cost of the shares, and the shareholder shall allocate, in the manner prescribed, the cost of the existing shares between the old shares and the new shares. 
(4) Where there is a part transfer of property the adjusted cost of the property shall be allocated to the part transferred in accordance with a method approved by the Commissioner. 

(4A) Where property is transferred in a transaction that is not subject to capital gains tax, and the property is subsequently transferred in a taxable transaction within a period of less than five years, then the adjusted cost in the subsequent transfer shall be based on the original adjusted cost as determined in the first transfer. (Finance Act 2023 wef 1st-July-2023 s28) 

(5) The Commissioner may make rules for the purposes of subparagraph (3) prescribing the manner of allocation to be prescribed under that subparagraph. 

8A
Notwithstanding any other provision of this Act, the deduction of costs of property shall not apply in the case of securities listed on any securities exchange approved under the Capital Markets Act. Finance Act, 2015effective 1st Jan2016 

Market value.

9.
(1) Where property is acquired or transferred -
  • (a) otherwise than by way of a bargain made at arms length; 
  • (b) by way of a gift in whole or in part; 
  • (c) for a consideration that cannot be valued; or 
  • (d) as the result of a transaction between persons who are related, then, for the purposes of – 
    • (i) paragraph 7, the amount of the consideration for the transfer of the property shall be deemed to be equal to the market value of the property at the time of the transfer; and 
    • (ii) paragraph 8, the amount of the consideration for the acquisition of the property shall be deemed to be equal to the market value of the property at the time of the acquisition or to the amount of consideration used in computing stamp duty payable on the transfer by which the property was acquired, whichever is the lesser. 
(2) Property is acquired or transferred by way of a bargain at arms length only if the consideration is determined as between an independent willing buyer and an independent willing seller. 

(3) The Commissioner may determine the market value of property, and a reference in this paragraph to the market value of property is a reference to the price which the property would fetch if sold in the open market as so determined.

Incidental costs.

10. 
For the purposes of paragraph 7(2) and 8(1)(d), 
the incidental costs of the acquisition or transfer of property shall consist of expenditure wholly and exclusively incurred by the person acquiring the property or the transferor for the purposes of the acquisition or transfer, as the case may be, of the property being - 
  • (a) fees, commission or remuneration paid for the professional services of a surveyor, valuer, accountant, agent or legal adviser; 
  • (b) costs of transfer (including stamp duty); 
  • (c) in the case of an acquisition, the cost of acquisition (including mortgage costs) and the cost of advertising to find a seller, and costs reasonably incurred for the purposes of this Schedule in making a valuation or in ascertaining market value;
  • (d) in the case of a transfer, the cost of advertising to find a buyer and costs reasonably incurred for the purposes of this Schedule in making a valuation or in ascertaining market value; and 
  • (e) any other costs which the Commissioner may allow as being just and reasonable. 

Amounts not allowable in computing transfer value or adjusted cost. 

11.
No amount shall be allowed - 
  • (a) under paragraph 7(2) as part of the incidental costs of making a transfer; or 
  • (b) under paragraph 8 as part of the adjusted cost of property, if that amount has been or is otherwise allowed as a deduction in computing gains or profits chargeable to tax under section3(2)(a). 
11A Deleted by (Finance Act 2023 wef 1st-July-2023 s28) 
The due date for tax payable in respect of property transferred under this Part shall be on or before the date of application for transfer of the property is made at the relevant Lands Office. Finance Act, 2015effective 1st Jan2016 
11A. The due date for tax payable in respect of property transferred under this Part shall be the earlier of— 
(a) receipt of the full purchase price by the vendor; or 
(b) registration of the transfer.        .....(Finance Act 2023 wef 1st-July-2023 s28) 

Transfer or acquisition of property with other property. 

12. 
Where property is transferred or acquired together with other property in pursuance of one bargain, then, notwithstanding that separate prices are, or purport to be, agreed for separate items of that property, the Commissioner may determine what part of the adjusted cost or the transfer value is reasonably attributable to each of the properties involved, which determination shall be binding on both the transferor and the transferee of the property.

Exemption 

(1) No gain or loss shall be included in the computation of income under section 3(2)(f) in the case of a transfer of property in exchange for other property that is necessitated by, and takes place pursuant to, a transaction involving the incorporation, recapitalization, acquisition, amalgamation, separation, dissolution or similar restructuring of corporate identity involving one or more companies (to the extent otherwise permitted by law) found by the Minister in his discretion to be in the public interest; but following that exchange, the cost to the transferor of the property acquired by him shall be the cost of the property transferred, except that the cost to a company of property received by it in exchange for the issue of its own shares or debenture shall be the cost to the issuee of the property received. 
(2) As a condition of making his finding that any one of the transactions referred to in subparagraph (1) is in the public interest the Minister may require one or more of the parties to the transaction to agree, for the purposes of this Act, as to the treatment of a charge, deduction or other item, present or future involved in or arising out of the transaction, including, without limitation, the treatment of property received as dividend, the charge of again or loss to income, the cost or valuation of property, the allocation of cost or value between different properties, and the accounting treatment of any item.
(3) An agreement made pursuant to subparagraph (2) shall, for the purposes of this Act, be binding on the party and its successors in title, as to matters covered by the agreement.
No gain or loss shall be included in the computation of income under section 3 (2) (f) in the case of a transfer of property that is necessitated by a transaction involving the incorporation, recapitalization, acquisition, amalgamation, separation, dissolution or similar restructuring of a corporate entity, where such transfer is—
  • a) a legal or regulatory requirement; 
  • b) as a result of a directive or compulsory acquisition by the government; 
  • c) an internal restructuring within a group which does not involve transfer of property to a third party; an internal restructuring which does not involve a transfer of property to a third party within a group which has existed for at least twenty-four months. or  .(Finance Act 2023 wef 1st-July-2023 s28) 
  • d) in the public interest and approved by the Cabinet Secretary.

PART II - ACCRUAL AND COMPUTATION OF GAINS FROM INVESTMENT SHARES 

14. 
In this Part of this Schedule -
"adjusted cost" means – 
(a) in the case of investment shares acquired before 13th June, 1975, the market price at which the shares could have been purchased in transaction between an independent willing buyer and an independent willing seller on the Nairobi Stock Exchange immediately prior to the close of business on 12th June, 1975; but if the transferor of the investment shares can prove to the satisfaction of the Commissioner that he actually paid more for the shares than that market price, the actual cost to the transferor of the shares may be substituted for that market price, and 
(b) in the case of investment shares acquired on or after 13th June, 1975, the amount or value of the consideration for the acquisition of the shares; Deleted  by Finance Act, 2015effective 1st Jan2016 

"consideration" means consideration in money or money's worth;

"investment shares" means shares of companies, municipal or Government authorities or a body created by those authorities, that are listed and traded on the Nairobi Stock Exchange;

"transfer value" means the amount of value of the consideration for the transfer of investment shares (less any amount which would be deductible under paragraph 10 of Part I of this Schedule if the gains were being computed under that Part). Deleted  byFinance Act, 2015 effective 1st Jan 2016

Computation of gains.

15.  The gain subject to tax under this Part is the amount by which the transfer value of investment shares transferred by a person who is an individual exceeds the adjusted cost of those shares.
The gain subject to tax under this Part is the gross consideration payable and shall be subject to the withholding tax rate under paragraph (3) and (5) of the Third Schedule.

Deduction of tax.

16. The gain ascertained under paragraph 15 is subject to a deduction of income tax at the rate of seven and a half per cent of that gain.

 Losses.
16A. 
Where in computing the gain accruing to a person on the transfer of investment shares, it is found that the adjusted cost of shares exceeds the transfer value of those shares the amount of the excess is the loss realized by the person on the transfer of the investment shares. 

Set-off of tax.
17. 
The provisions of section 39 apply to tax deducted under paragraph 16.Deleted  by Finance Act, 2015effective 1st Jan2016(Par 16,16A & 17)

Collecting of tax.

18. 
A stockbroker who conducts the transfer of investment shares on behalf of a transferor shall
collect and remit tax to the Commissioner in accordance with section 35(5).
Finance Act, 2015 effective 1st Jan 2016
  • Provided that this paragraph shall also apply to shares transferred under Part I of this Schedule.

Remittance of tax.

19. 
The remittance of money by a stockbroker under paragraph 18 shall be a full and final discharge to the stockbroker as against all persons from liability in respect of that money.

Failure to collect and remit.

20. 
A stockbroker who fails to collect and remit as required under paragraph 18, the amount of income tax out of the proceeds (over which he has control) accruing as a result of the transfer of investment shares is jointly and severally liable with the transferor of the shares for payment of the tax.

Exemption.

21.
  • (1) Where the transferor of investment shares is an unincorporated association or body of individuals of a public character which as been exempted from income tax under paragraph 10 of the First Schedule no deduction of income tax shall be made under this Part of this Schedule.
  • (2) Gains from a transfer of investment shares for or in connection with a pension fund, trust scheme, or provident fund registered with the Commissioner shall not be subject to deduction of income tax under this Part of the Schedule.
Part III-Deleted by Finance Act, 2014effective 01 January2015


PART III -
  REDUCTION OF CHARGEABLE GAINS IN RESPECT OF PROPERTY ACQUIRED BEFORE 1ST JANUARY, 1975, AND TRANSFERRED BEFORE 1ST JANUARY, 1985
Interpretation. 

22.(1) In this Part of this Schedule -
"property" means "property" as defined in Part I of this Schedule.
"transfer" has the meaning assigned thereto in paragraph 6 of this Schedule.
(2) Property shall for the purposes of this part of this Schedule be deemed to Have been acquired by the taxpayer on the date on which it passed or was conveyed into his name or into the name of another person for his absolute benefit and to have been transferred by the taxpayer on the date on which there was a transfer of the property by the taxpayer.

Application. 

23. he provisions of this part of this Schedule shall apply only to property acquired before 1st January, 1975, which is also transferred before 1st January, 1985.

Amounts represented by A and B in reduction formula 

24. In paragraph 25 -
 A is -
(a) in respect of property acquired before 1st January, 1955, the number 1955; or (b) in respect of property acquired on after 1st January, 1955, but before 1st January, 1975, the number given by the year of acquisition of the property. B is the number given by the year of transfer of property transferred on or after 1st January, 1975.

Reduction formula. 

18 of 1984 s.8 
25. Gains chargeable to tax under section 3(2)(f) in respect of property acquired before 1st January, 1975, and transferred before1st January, 1985, shall be reduced by the percentage given by the formula -  (1975 - A) ÷ (B - 1954) x 100
 
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