A residential rental income tax is an amount that is payable by any resident person be it an individual, a group or a company from the income received or derived for the use of or occupation of residential property. In simple terms, residential rental income tax is the amount payable to the Kenya Revenue Authority by landlords taken from the amount received as rent from tenants. It is tax paid on rent collections.
This is a requirement that is enshrined in the Financial Act 2015 that introduced a new section known as Section 6A in the Income Tax Act Cap 470 in the Laws of Kenya. The Act provides for a simplified tax regime for all the rental income. This tax on rental income is what is known as residential rental income tax.
The act requires resident persons or landlords who are either individuals or a company to pay a 10 percent of the gross rental income that has accumulated or is derived in Kenya for the use of residential property. This is applicable where the rent income does not exceed 10 million shillings per annum. However, a landlord has a choice to either remit through the residential rental income tax or remain in the current rental income tax regime only if he or she requests so in writing to the Commissioner so as to be taxed under the normal tax rates which are often calculated on a ‘graduated scale of 10 percent to 30 percent.
A landlord who chooses to be taxed under the current rental income tax regime shall pay tax in instalments as well as filing annual tax returns. If you are a partner in a rental property, you have nothing to worry for under the Income Tax Act, partnerships are not taxable. However, individual partners are taxed based on an individual share of income from the partnership. For purposes of this tax, if the individual share of gross rental income from the property is less than 10 million shillings, the partners will be eligible for the new tax at 10%.
Article by Juma Fred.