In legal documents for a Kenya property transaction, the word "consideration" refers to what the buyer gives in exchange for the property. In most cases, this is money — the purchase price. But the concept of consideration in property law is broader.
What Constitutes Consideration
Cash consideration. The most straightforward: KSh X paid in exchange for the property. The sale agreement states the amount.
Non-cash consideration. Property can be exchanged for other property (a swap or exchange). The swap agreement specifies the consideration as the other property.
Nominal consideration. Gifts of property often state a nominal consideration (KSh 1 or a small symbolic amount) to satisfy the technical requirement that a contract have consideration. However, stamp duty is still assessed on the market value, not the nominal amount.
No consideration. Strictly speaking, a gift has no consideration in the common law sense. Kenya conveyancing handles this through a deed of gift, which does not require consideration but has different stamp duty implications.
Why Consideration Matters for Stamp Duty
Stamp duty is calculated on the higher of:
The stated consideration (purchase price) in the transaction documents. The market value as assessed by KRA.
If the stated consideration is below market value, KRA will assess stamp duty on market value.
This is the critical point for buyers and sellers who are tempted to under-declare the purchase price in the sale agreement:
Under-declaring is a tax offence. KRA assesses the actual market value and charges stamp duty on that. KRA can impose penalties for under-declaration. The under-declared value creates a lower cost basis for future capital gains calculations (which may mean higher capital gains tax when you sell).
Documenting Consideration
The sale agreement must clearly state the consideration:
"The Vendor agrees to sell and the Purchaser agrees to purchase the property described herein for the consideration of Kenya Shillings [amount in words] (KSh [amount in figures])."
The stamp duty self-assessment on KRA iTax is based on this stated consideration.
The Capital Gains Tax Dimension
When you eventually sell the property, capital gains tax (5%) is calculated on the net gain:
Sale price - Original cost (the consideration you paid) = Gain.
A correctly stated original consideration gives you the right cost basis for this calculation. An under-stated original consideration means your gain appears higher than it actually was, resulting in higher CGT.
For Gifts and Nominal Consideration Transactions
When property is transferred for nominal or no consideration, KRA still assesses stamp duty on market value. Your advocate will need to prepare a stamp duty self-assessment based on an independent valuation, even if the formal consideration is nil.
This article is for general information only. It does not constitute tax advice. Consult a qualified Kenya advocate and tax professional for advice specific to your transaction.