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July 19, 2022by Waya Ndegwa

The Court of Appeal stressed the doctrine of vicarious liability as enunciated in Charlesworth on Negligence 4th Edition, Sweet and Maxwell;

“Unquestioningly, no one can be made liable for an act or breach of duty unless it be traceable to himself or his servant or servants in the course of his or her employment. Consequently, if an independent contractor is employed to do a lawful act, and in the course of the work, his or her servant commits some casual act of wrong or negligence, the employer is not answerable.”


The property market is heading for unchartered waters. The Finance Act 2022 presents new and unique challenges for key stakeholders in Real Estate. Specifically, the Act seeks to triple capital gains tax (hereinafter referred to as ‘CGT’) from 5% to 15%.

CGT refers to the gain or profit realized by the disposal of property in Kenya. It is a tax charged on the difference between the sales price and the cost of the property.

CGT was re-introduced under the Finance Act 2014 at a rate of 5%. This was an attempt by the government to obtain additional revenue collection from a rapidly growing real estate market. According to reports by Knight Frank’s Prime International Residential Index (PIRI), Kenya’s real estate property market for prime property grew by 25% in 2011 and 2012 respectively. The growth in real estate presented a new opportunity for the government to seek additional tax revenues from capital gains. 2015 led to the re-implementation of CGT for the first time since 1985.

However, back in 2019, there was an attempt to increase the rate of CGT from 5% to 12.5% but due to pressure from stakeholders, the government backed down on the proposal. The real estate market has experienced much slower growth in recent years, with statistics demonstrating the oversupply of property leading to a decrease in prices. The government’s attempt to increase CGT to 15% presents a new challenge to a market that seems to have reached its potential. According to KPMG, part of the reason why the government is seeking to increase CGT now is because Kenya wishes to be at par with regional countries on the rate of tax applied on the disposal of property. Furthermore, with rising public debt, there is increased pressure for the government to meet tax revenues.

In addition, in the financial year of 2021-22, KRA has been able to surpass revenue targets with growth of corporation tax by 32%, domestic value added tax (VAT) by 24%, and domestic excise of 6.2%. Seeing this growth, it seems KRA also wishes to achieve similar targets with CGT.

Implications of higher CGT on the property market post COVID-19

The increase of CGT from 5% to 15% might hurt investor confidence in the property market. Halfway through 2022, reports from Hass Consult and the media have shown that demand for land and property has yet to bounce back to pre-pandemic levels. Because new rates of CGT shall begin from 1st January 2023, investors between now and the end of the year might want to dispose of their property to prevent being taxed any further on their gains.

On the other hand, investors might adopt a wait-and-see approach for at least another financial year, owing to the imminent change in government from August this year and the possibility of a reversal in the rate of CGT by the new government.

Special Purpose Vehicles (SPVs) might become a common tool in Real Estate

An SPV is a subsidiary company that is formed to undertake a specific business objective or activity. They are formed by the Parent company to carry out specific commercial functions. SPVs are used in real estate to acquire and hold property. For purposes of real estate, investors decide to transfer property into the hands of the SPV.

The investor can then sell the SPV instead of the properties and pay tax from the sale of shares in the SPV instead of having CGT from the direct sale of the property.1 Through selling the SPV, investors would be able to avoid paying CGT of 15% and still maintain their needed profit margins.

The Director of Business Registration Services might see an increase in the registration of companies as SPVs specifically for property disposal. More investors may wish to use this tool to ensure that the sale of property remains competitive and affordable for Kenyan consumers.

Potential implications for Sectional Properties

The Sectional Properties Act aims to introduce the division of buildings into units to be owned by individual proprietors. This allows real estate investors to sell units with their own respective titles and acquire capital gains from the sale of each unit. Because each sectional unit shall have its own title, investors will be taxed 15% on the gains from each sectional unit they sell.

The increase in CGT has the potential to further push the prices of property sold as sectional units to buyers, as each investor might want to ensure a profit margin is maintained for each unit sold. Therefore, this has the potential for buyers of sectional units to take higher loans to buy sectional units to meet the prices of units sold by investors. According to data from the Kenya Bankers Association (KBA), last year saw a decrease in mortgage uptake as non-performing loans increased by 1.8% in December 2020, and interest rates increased by 4.4%. With CGT now at 15%, there might even be less mortgage uptake and non-performing loans might increase as buyers struggle to meet new market prices.


The increase in CGT will disrupt the once-booming real estate market. With an increase in the prices of property, there might be a reduced appetite for property. The government should have waited for demand to return to pre-pandemic levels before deciding to increase the price of property sales. Investors might adopt a wait-and-see approach regarding the next financial year, and tax avoidance schemes might become a more common factor in the real estate market.

The increase in CGT might also be challenged in court regarding its constitutionality. Seeing as the minimum tax was considered unconstitutional last year, it remains to be seen if the increase will be challenged in Court.

We shall update the public on any further updates that occur with regards to any further legal changes.

Disclaimer: This alert serves to be for information and educational purposes only. It should not be relied on as legal advice. In case legal advice is required, kindly contact

For additional advice on the matter above, kindly contact:

Grace Wangui Koech

  • Partner

Waya Ndegwa

  • Legal Trainee

Photo by Wance Paleri on Unsplash

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Nyihamukoma & Co AdvocatesContact us
Advocates, Commissioners for Oaths and Notaries Public.
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