Court Rules on Payment of CGT in Forced Sale of Land by Lenders


Just as we had predicted in our article ‘Payment of Capital Gains Tax in Bank Forced Sale Transactions in Kenya’, the High Court has recently held that KRA’s requirement for Capital Gains Tax (“CGT”) to be paid simultaneously with stamp duty on a sale of land by a Lender pursuant to its statutory power of sale is unreasonable, unfair and influenced by an error of law. For purposes of this article and for ease of understanding, we have used the terms ‘Lender’ and ‘Borrower’ instead of ‘Chargee’ and ‘Chargor’ respectively.

In Miscellaneous Civil Case Number 510 of 2017 (unreported), the Kenya Bankers Association (“KBA”) challenged the administrative action by KRA compelling Lenders to pay CGT on the sale of land pursuant to the Lenders’ statutory power of sale. It observed that the KRA’s i-Tax system does not permit the payment of stamp duty on a transfer unless an acknowledgment number for the payment of CGT on that sale is entered into the i-Tax system.

While agreeing with KRA that, to expect a Borrower to pay CGT in respect of a transaction which he has no control is unreasonable, the High Court held that it was equally unreasonable and unfair to demand a Lender to pay CGT upfront without first making a determination, based on the relevant factors, whether there is in actual fact a capital gain or loss. The Court was of the view that, although the Lender is a nominee of the Borrower for the purposes of payment of CGT (where, after the sale of the property the same is found to be lawfully due and payable), such a decision must be determined on a case to case basis. It stated that it was irrational to direct that CGT be paid in respect of all transactions entered into pursuant to the Lender’s exercise of its statutory power of sale before such a sale can be completed.

In addition, the Court held that, on the sale of land by a Lender in a forced sale, CGT is payable by the Borrower (owner of the land) upon registration of the transfer and not by the Lender or purchaser, unless there is a surplus from the proceeds of sale as to constitute the Lender a trustee for the Borrower.

Consequently, KRA was ordered to allow payment of stamp duty on instruments of transfer following sale of Land by Lenders pursuant to their statutory power of sale, without requiring the payment of CGT or an acknowledgement number for payment of CGT.


Considering that payment of stamp duty is done online, KRA should, following the High Court’s decision, change its i-Tax system to allow for payment of stamp duty without requiring an acknowledgement number for the payment of CGT, in respect of all transactions entered into pursuant to the Lender’s exercise of its statutory power of sale. We wait to see whether this will be done.

Article by: Patience Laki

Please note that this publication is meant for general information only and does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. Readers are advised in all circumstances to seek particular advice on any issue dealt with herein.


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