Finance Bill 2026: What Nairobi Landlords Must Do Before 1 July

The Finance Bill 2026 proposes raising the Monthly Rental Income (MRI) tax rate from 7.5% to 10%, effective 1 July 2026. If you earn residential rental income in Nairobi, that single change adds roughly one-third to the tax you currently pay on every shilling of gross rent. It is the most significant MRI adjustment since the rate was cut in 2024, and it comes with two other changes that also affect landlords: a new final-tax regime for non-resident property owners, and a capital gains relief for transfers into registered real estate investment trusts (REITs). Here is what each proposal means in plain English, and what to do before the deadline.

A note on these figures: At the time of writing, the Finance Bill 2026 has not yet received presidential assent. The rates, thresholds, and dates in this article reflect the Finance Bill 2026 proposals as published and analysed by multiple tax practitioners. Landlords should verify the enacted position with the Kenya Revenue Authority (KRA) or a qualified tax adviser once the Bill is signed into law.

What the Finance Bill 2026 Changes for Landlords

The Finance Bill 2026 was published on 30 April 2026. For landlords, three provisions stand out.

The Three Changes That Matter Most

First: the MRI rate on residential rental income moves from 7.5% to 10% for resident landlords within the qualifying income band. The change reverses the reduction that came into effect under the Finance Act 2023, which had brought the rate down from 10% to 7.5% as of January 2024. The Bill simply reverses that cut.

Second: the Bill introduces a new Section 6B to the Income Tax Act, creating a standalone final-tax regime for non-resident persons earning rental income from property in Kenya. Where a resident agent receives the rent and withholds tax, that withholding discharges the non-resident liability. Where no resident agent is involved, the non-resident must register, file monthly returns, and remit directly.

Third: the Bill proposes an exemption from capital gains tax on the transfer of property into a collective investment scheme registered as a REIT. It pairs this with a stamp duty exemption on instruments conveying a beneficial interest in property to a REIT. The policy aim is to reduce the tax cost of injecting assets into REIT structures, which has historically been a barrier to forming such vehicles in Kenya.

Why 1 July 2026 Is the Date to Plan Around

Most Finance Bill provisions are designed to take effect on 1 July 2026, which is the start of Kenya's financial year. The MRI rate change and the non-resident rental regime both carry this proposed effective date. That gives landlords a narrow window. If you are on iTax and filing MRI monthly returns, your July 2026 return will almost certainly be calculated at the higher rate if the Bill is enacted as drafted.

In our work with Nairobi landlords over the past 30 years, we have seen the same pattern repeat: landlords who plan a quarter ahead absorb regulatory changes without disruption. Those who discover the change mid-filing cycle scramble.

The Monthly Rental Income Rate Moving to 10%

MRI is a final tax. It is simple in structure: you pay a flat percentage of your gross rental income each month, with no deductions permitted against it. That simplicity is its selling point. But simplicity cuts both ways when the rate rises.

Who the MRI Band Covers

The MRI regime currently covers resident landlords whose gross residential rental income falls between Ksh 288,000 and Ksh 15 million per year, according to the Finance Bill 2026 analysis published by Cliffe Dekker Hofmeyr. Landlords below Ksh 288,000 per year (Ksh 24,000 per month) are below the MRI threshold. Landlords above Ksh 15 million per year fall under the standard income tax rules, where different rates and deduction rules apply.

If your gross monthly rent across all residential units sits between roughly Ksh 24,000 and Ksh 1.25 million, you are almost certainly in the MRI band.

What This Means for Your Filing

The change itself requires no re-registration. Your MRI returns run through iTax, and the rate applied to your declared gross income will update once the new rate is live. The change does compound across a portfolio. A landlord collecting Ksh 120,000 per month in gross residential rent currently pays Ksh 9,000 per month in MRI at 7.5%. At 10%, that becomes Ksh 12,000. The extra Ksh 3,000 per month is not large in isolation, but across a building with multiple units it adds up.

The MRI regime does not permit any deductions against gross income. Repairs, management fees, insurance, and mortgage interest cannot be set off under MRI. If your allowable expenses are high relative to your rental income, it may be worth reviewing with a tax adviser whether switching to the standard regime makes sense for your situation. That is a conversation to have before 1 July, not after. To understand how Monthly Rental Income Tax works and how the current 7.5% rate is applied, our earlier guide covers the mechanics in full.

The New Regime for Non-Resident and Diaspora Landlords

Kenya has long had a mechanism for taxing non-resident property owners: a withholding tax on gross rental income from immovable property under Section 35 of the Income Tax Act. The compliance problem has always been that the obligation to withhold rests with tenants or agents, and in practice it has been inconsistently applied.

The Finance Bill 2026 addresses this with a new direct-assessment track.

The 30% Withholding in Brief

Under the Finance Bill 2026 proposals analysed by KPMG Kenya, the new non-resident rental income tax imposes a final withholding tax of 30% on gross rent from immovable property (land and buildings). A lower rate of 15% applies to rent from movable property. Non-resident persons are required to register under a simplified framework, file monthly returns, and remit by the 20th of the following month.

These figures reflect the Finance Bill 2026 proposals as published and reviewed by tax practitioners. The 30% rate for immovable property is not new in concept; what is new is the direct-registration obligation placed on the non-resident, rather than relying solely on tenant or agent withholding. Confirm the enacted rate with KRA or a qualified tax adviser once the Bill receives presidential assent.

If you own a Nairobi apartment or building and live outside Kenya, this affects you directly.

When a Resident Agent Changes the Picture

There is a meaningful carve-out. If your rental income passes through a resident managing agent who is already obligated to withhold tax under Section 35(3)(j) of the Income Tax Act, that withholding satisfies the non-resident obligation. You do not need to file separately as a non-resident if the agent handles withholding on your behalf.

We have seen this work well in practice. Diaspora landlords who appoint a Nairobi-based managing agent gain a cleaner compliance position: the agent withholds, remits, and maintains the paper trail. Landlords who collect rent informally, without a resident agent, have no such cover. The new direct-assessment framework is designed precisely for that gap.

The REIT Transfer Exemption Explained

REITs have struggled to gain traction in Kenya partly because injecting property assets into them triggered capital gains tax at the point of transfer. The Finance Bill 2026 proposes to remove that barrier for transfers into registered collective investment scheme REITs.

What Restructuring Relief Is Being Introduced

The Bill proposes an exemption from capital gains tax on the transfer of property into a REIT registered as a collective investment scheme under Kenyan law. It also extends a stamp duty exemption to instruments conveying a beneficial interest in property to such a REIT. According to analysis by Bowmans Law, the policy aim is to reduce the upfront tax cost of restructuring real estate assets into REIT vehicles, bringing Kenya's framework closer to international norms.

For most individual Nairobi landlords, this provision will not be immediately relevant. It matters most to developers, large building owners, and institutional investors considering a REIT structure. But if you hold a significant commercial or mixed-use portfolio and have been deterred by the tax cost of restructuring, this proposal changes the picture and is worth raising with your adviser.

What You Can Still Deduct Against Rental Income

The Finance Bill 2026 proposals do not change the deduction position under the standard income tax regime. What is and is not deductible depends on which regime you are in.

Allowable Expenses to Keep Evidenced

Under MRI: no deductions are permitted. The tax applies to 100% of your gross rent. This is unchanged by the Finance Bill.

Under the standard income tax regime (for landlords outside the MRI band, or who have elected out of MRI), you may deduct allowable expenses incurred wholly and exclusively in earning the rental income. These typically include:

Mortgage interest on a loan taken to acquire or improve the property
Repairs and maintenance (not improvements or capital work)
Insurance premiums on the property
Property management fees paid to a licensed agent
Ground rent or service charges you pay as the property owner
Wear and tear allowance on qualifying fixtures

The standard regime requires you to keep receipts and records for every deduction claimed. If KRA queries your return, the supporting documents must be available.

We have worked with landlords across Nairobi for 30 years. The common thread in every KRA compliance review is this: landlords with orderly records resolve queries quickly. Those with informal or partial records spend months untangling them.

Getting Your Records Ready Before the Deadline

A rate change on 1 July is not just a number change in your next return. It is an opportunity to make sure your entire rental position is clean before the new regime kicks in.

Lease and Receipt Housekeeping

Start with your leases. Every tenancy should have a signed written agreement. The lease should show the correct monthly rent, the names of the tenant and their KRA PIN, the property address, and the start and end dates. If you have inherited tenancies from previous owners or let units informally, now is the time to formalise.

Your rent receipts should match your declared income in iTax. If you collect rent by M-Pesa or bank transfer, your records should be printable and reconcilable. Gaps between what your bank shows and what you have declared should be addressed before 1 July. This matters because KRA may cross-reference declared income against payment records if it sees a sudden jump when the rate changes.

Registering on KRA's eRITS system is also essential: eRITS captures your rental data at the individual unit level and links each tenancy to a tenant PIN. If your eRITS data does not reflect your actual tenants and current rents, your monthly returns may not match, creating a compliance gap.

Reconciling Arrears and Voids

Under MRI, you declare the rent you receive, not the rent you are owed. If a tenant is in arrears and has not paid, you should not be declaring that unpaid rent as income. But you need a clear paper record showing the arrears position: demand letters sent, the amounts outstanding, and the period they cover.

Void periods, where a unit was genuinely empty, should also be evidenced. An eRITS return showing zero rent for a unit is consistent with an actual vacancy. An unexplained gap in an otherwise occupied property invites a query.

How a Managing Agent Keeps Your Filing Clean

Compliance is not just about knowing the rules. It is about maintaining the records that let you apply the rules correctly, month after month, without gaps.

Rent Records That Match Your Returns

A professional managing agent collects rent, records it, and produces a monthly statement that reconciles to your bank account. That statement is the source document for your MRI or standard-regime return. When the figures are generated systematically, there is no gap between what was received and what is declared.

In our work across the Nairobi market, we handle eRITS registration, monthly filing coordination, and arrears tracking for landlords who want to stay on the right side of KRA without spending evenings cross-checking spreadsheets. Our letting services for landlords cover the full cycle from tenant sourcing to monthly return support.

The Finance Bill 2026 proposals also touch on the Affordable Housing Levy, which continues to apply to rental income. If you have not yet worked through how the Affordable Housing Levy on rental income sits alongside your MRI obligations, that is worth doing now, before 1 July adds another rate change to the picture.

A Pre-1-July Compliance Checklist

Work through these steps before the end of June 2026.

[ ] Confirm your MRI band. Add up your total gross residential rental income for the year to date and project to year-end. If you fall between Ksh 288,000 and Ksh 15 million, you are in the MRI band. Confirm with a tax adviser.
[ ] Review your iTax profile. Your registered rental properties, tenant PINs, and monthly declared figures should be current and accurate.
[ ] Log into eRITS. Check that every active unit is registered and that each tenant PIN is linked correctly. Correct any mismatches now.
[ ] Reconcile rent receipts to iTax returns. Your bank statements or M-Pesa records should match your declared monthly income for the past 12 months. Investigate any gaps.
[ ] Document arrears and voids. Print demand letters for any tenant in arrears. Note which units were vacant and for how long.
[ ] Check your lease files. Every tenancy should have a signed written lease showing the current rent and tenant KRA PIN.
[ ] Consider standard versus MRI. If your allowable expenses are significant, discuss with a tax adviser whether electing the standard regime makes sense before the rate rises.
[ ] Non-resident landlords: appoint a resident agent. If you live outside Kenya and have no resident agent, the proposed new Section 6B regime means you must register, file monthly, and remit directly. Appointing a Nairobi-based managing agent simplifies this considerably.
[ ] Plan your cashflow. If you are on MRI and the rate rises from 7.5% to 10%, model the extra cost against your gross rent now, not in July.

Where to Get the Current Figures Verified

This article reflects the Finance Bill 2026 proposals as published and reviewed by multiple tax practitioners. The Bill has not yet received presidential assent. Before acting on any of the figures above, verify the enacted rates and thresholds with:

Kenya Revenue Authority (KRA): www.kra.go.ke - the iTax portal and KRA's dedicated landlord compliance pages carry the authoritative current rates.
Kenya Law: www.kenyalaw.org - the full text of the Finance Act once enacted will be available here.
National Treasury Kenya: www.treasury.go.ke - the Budget Statement and explanatory documents for the Finance Bill are published here.

For a tailored review of your specific rental portfolio and compliance position, speak to our REAL Management Services team. We will not quote you a statutory rate: that is for KRA and your adviser. What we will do is help you make sure your records are in the shape that lets you file confidently.

Frequently Asked Questions

When do the Finance Bill 2026 rental tax changes take effect?

The Finance Bill 2026 proposes that the changes, including the increase in the MRI rate from 7.5% to 10%, take effect from 1 July 2026, subject to the Bill being enacted. Landlords should monitor the KRA website and confirm with a tax adviser once the Bill receives presidential assent.

Does the higher MRI rate apply to every Nairobi landlord?

The Monthly Rental Income regime covers resident landlords earning gross residential rental income between Ksh 288,000 and Ksh 15 million per year. Landlords below or above that band fall under different rules. The proposed 10% rate applies to that band if the Finance Bill is enacted as drafted.

What expenses can I still deduct against my rental income?

Under the MRI regime, no deductions are permitted. The tax applies to gross rental income. Landlords who elect the standard income tax regime instead may deduct allowable expenses such as mortgage interest, insurance, repairs, and management fees, but the standard progressive rates apply. Discuss your position with a qualified tax adviser.

Do I need to register on eRITS as well as iTax?

Yes. eRITS is the KRA module within iTax that captures rental information at the individual unit level. You file through iTax but the rental data is captured via eRITS. All residential landlords are required to register their properties and tenants within the system and file monthly returns.

How does a managing agent help me stay compliant?

A managing agent maintains rent schedules that reconcile directly with your iTax and eRITS returns, tracks arrears and voids so your declared income is accurate, and flags regulatory changes like the Finance Bill 2026 proposals before they take effect. REAL Management Services has handled landlord compliance across Nairobi for 30 years.

REAL Management Services (2002) Limited has provided property management and letting services in Nairobi for over 30 years. This article is for general information only and does not constitute tax advice. Confirm all statutory rates and filing obligations with KRA or a qualified tax adviser.