Navigating tax arrears and compliance with the Kenya Revenue Authority (KRA) can feel daunting, but property owners have structured options to manage their obligations. Whether you need to secure a tax debt or want to ensure your rental income taxes are fully compliant, here is what you need to know.
Part 1: Using Property to Secure Your Tax Debts
- Can I use my property as collateral if I don’t have the money to pay my taxes?
Yes. If you are unable to pay your tax debt in one lump sum, you can approach the KRA to negotiate a payment plan. As part of this agreement, the KRA may place a “charge” on your property title. This acts as security, giving the authority a legal claim to the property until the tax debt is fully paid.
- What is a charge, and how does it affect my ownership?
Think of a charge as a legal “lock” on your property title. It registers KRA’s financial interest in the property, which prevents any major dealings, particularly the sale or transfer of the property, until the tax debt is completely settled.
- Once I settle my tax debt, how is the lock removed?
Because KRA never actually takes ownership of your property, it does not need to be “transferred” back to you. Instead, once the tax debt is paid, a Discharge of Charge document must be executed. This legal document proves the debt is fully settled. You (or your advocate) must then lodge the Discharge of Charge, along with your original title deed, at the Land Registry. Once registered, the charge is removed, unlocking your property completely.
- What is the new notice by KRA regarding existing charges?
KRA is currently engaged in a broader effort to update its tax records. The recent notice applies to property owners whose properties have existing charges or “locks.” The goal is to ensure that if a property still has an existing lock on the registry despite the tax debt being paid in full, the records are updated and the charge is officially removed.
- What documents do I need to submit to update my records?
To help KRA verify your status and facilitate the removal of an outdated charge, you will generally need:
- A copy of your Title Deed.
- A recent Official Search from the Land Registry.
- A copy of your KRA PIN.
- Proof of payment/clearance of the tax debt.
- Can I sell the property while KRA holds it as security?
Generally, you cannot transfer the property until the tax is paid. However, if you find a buyer, you can arrange to have the tax debt paid directly from the sale proceeds. Once KRA receives its money, they will execute the Discharge of Charge, allowing the transfer to the new owner to go through smoothly.
Part 2: Staying Compliant as a Landlord (MRI Tax)
- I am a landlord; does the property charge affect my Monthly Rental Income (MRI) tax?
A charge only applies to properties used as security for unpaid taxes. However, to avoid falling into debt in the first place, property owners must stay current with ongoing taxes. If you earn rental income between KSh 288,000 and KSh 15 million annually, you are subject to the Monthly Rental Income (MRI) tax. You must pay 7.5% of the gross rent collected as tax every month.
- When is the deadline for paying my monthly rental tax?
You must file your return and pay the tax by the 20th of the following month. For example, rent collected in February must be declared and the tax paid by March 20th.
- Can I deduct repair costs or agent fees from the 7.5% rental tax?
No. Under the simplified 7.5% MRI rate, you pay tax on the total gross amount collected. You cannot subtract expenses, losses, or capital deductions. Deductions are only allowed if you opt out of the MRI regime and file under the standard “Annual Income Tax” regime (which is mandatory for landlords earning over KSh 15 million annually).
- What if my rental units were empty this month?
You are still required to log into iTax and file a “NIL” return for that month. If you fail to file, the KRA system will automatically penalize you. For individuals, the late filing penalty is KSh 2,000 (or 5% of the tax due, whichever is higher), even if you didn’t earn a single cent in rent.
Need help with your compliance?
Always consult a certified tax professional or legal advocate to ensure your payment plans are structured correctly and your property records remain unencumbered.
