Determining the stamp duty of your property

By Harold Ayodo

It is important to pay revenue to the Government when purchasing property. Lawyers who are involved in the process must uphold integrity and not underestimate the value of the property so that a stamp duty of lesser amount is given. The Stamp Duty Act states that documents must be stamped within 30 days of acquisition or invite a penalty.

On the other hand, the Lands Act and Registered Lands Act state that legal instruments such as leases, transfers, charges and mortgages will not be accepted unless they are duly stamped. The revenue, which is paid to the Commissioner of Domestic Taxes, proceeds to the Government. Failure to pay such revenue is a criminal offence.

Documents executed abroad must also be stamped within 30 days of proof of receiving them. The person collecting the stamp duty can, however, allow one to pay the revenue out of time and waive the penalties. If, for whatever reason payments exceed the charged amounts, applications for refunds should be made within one year.

The main advantage of stamping official documents is because they can be used in a court of law in cases of fraud. However, revenue paid varies depending on the location of the property. Property within municipalities, for instance, attracts a duty of four per cent of the selling price. Agricultural land outside the municipalities attracts two per cent of the selling price.

Land valuation

The revenue to be paid for a mortgage is pegged on the amount secured, but the legal rate stands at Sh2 per every Sh1,000. Hence, a mortgage of Sh5million will attract a stamp duty of Sh10,000.

Stamp duty on leased property is based on the annual rent that is payable.

This is of two categories. First, those exceeding a year but is less than three years attracts a stamp duty rate of one per cent. Hence, for an annual rent of Sh1.2million, duty of Sh12,000 is paid.

Second, leases above three years are calculated at a rate of two per cent or Sh20 per Sh1,000, with the highest figure used in cases of fluctuating rents.

The collector of stamp duty can ask the valuation department in the Ministry of Lands to value the land if in doubt.

Today, it is no longer easy to conclude a transaction within 24 hours, as was the case five years ago, since a valuation must be done before the collector endorses the property.

The Law empowers the Registrar of Lands to place a caveat or restriction where the proper amount of stamp duty is not paid and lift it when it is paid.

—The writer is a lawyer and journalist with The Standard Group.