The Government of Kenya has published a bill that seeks to exempt first time home buyers from paying stamp duty. The bill is seen as a move by the Uhuru Kenyatta government to promote home ownership among most Kenyans. This is in line with President Kenyatta’s Big Four Agenda which among other things seeks to create 500,000 new home owners through facilitation of affordable housing. The affordable housing programme hopes to inject capital into the housing sector and undertake reforms to lower the cost of construction and access to affordable mortgages.
The proposed amendment to the law is contained in the Tax Laws (Amendment) Bill, 2018 which was introduced by National Assembly Majority Leader Honourable Aden Duale on 10 April 2018. The bill proposes to amend section 117 of the Stamp Duty Act, Chapter 480 Laws of Kenya which, if passed by Parliament, will provide that: “There shall be exempt from stamp duty under this Act – the purchase of a house by a first-time owner under affordable housing scheme.” The amendment does not provide details as what constitutes an affordable housing scheme and what criteria will be used to determine who a first-time home buyer is.
This amendment, if passed into law, will significantly reduce the cost of new affordable homes. Stamp duty is charged on the market value of the property but subject to valuation by a Government Valuer. The tax payable for properties situated within cities and municipalities is 4% of the value of the property while that levied on properties situated within rural or agricultural areas is 2% of the value of the property. It is not clear from the proposed amendment if there will be a value threshold for which this exemption will be applicable. The proposes amendment is subject to reading and debate in Parliament and its final form might take into consideration this issue.
Exemption of stamp duty for first-time home buyers is not a new practice. In 2017 the United Kingdom scrapped stamp duty for first-time home buyers in England, Wales, and Northern Ireland as part of the UK’s government efforts to ease the challenges facing aspiring home buyers. The first-time buyer stamp duty exemption in the United Kingdom applies to the purchase of properties of up to £500,000. Properties valued up to £300,000 do not attract any stamp duty whereas properties valued between £300,000 and £500,000 attract stamp duty of 5% on the portion above £300,000. The Kenyan parliament could adopt similar thresholds once the bill is debated to protect the tax reforms from exploitation by wealthy individuals seeking to buy high end and expensive homes. Introducing these kinds of thresholds will ensure that the tax reforms indeed benefit most Kenyans aspiring to buy affordable homes.
The proposed amendment initially drafted has other shortcomings. For example, it does not address the issue of joint home buyers where one partner is not a first-time buyer. Secondly, it does not consider of a divorcee who might have been previously registered as a joint owner of a marital home and would want to buy a property in his/her sole name. Thirdly, it does not address the issue of a home buyer who currently owns a home abroad but is a first-time buyer in Kenya. Fourthly, it does not consider people who have inherited property and intend to buy their first home. Finally, it does not contemplate a scenario where a first-time home buyer is buying to let. These are some issues that Parliament ought to consider ensuring the tax reforms indeed benefit genuine first-time home buyers.
The United Kingdom has been elaborate on these issues and has defined a first-time home buyer as someone who has never owned a freehold or leasehold interest in a dwelling before and who is purchasing their only or main residence. Further, residential property anywhere in the world is counted when determining whether someone is a first-time buyer in the UK. All purchasers in a joint purchase must be first-time buyers to be eligible for the stamp duty relief.
Mortgage uptake in Kenya is set to improve if this proposal is passed into law, together with the proposed repeal of the interest cap law. Kenya has a low mortgage uptake with 24,085 mortgage accounts recorded in 2015. This is up from 7,275 accounts recorded in 2006. Whereas the numbers have increased in the last decade, they remain low compared to other economies. According to a World Bank report Kenya’s mortgage asset are slightly above 2.5% of GDP which is lower than South Africa and Namibia. Affordability of mortgage finance and high cost of land contribute significantly to the low mortgage numbers seen in Kenya. The proposed tax reforms and the government’s push to facilitate affordable housing will see the situation improve.
For any further information regarding the proposed law on stamp duty exemption, please write to Bryan Yusuf at firstname.lastname@example.org.