STAMP DUTY EXEMPTION ON TRANSFER OF FAMILY PROPERTY TO A COMPANY WHOLLY OWNED BY FAMILY MEMBERS

INTRODUCTION

Land transfer transactions are subject to payment of stamp duty, which is payable to government in different rates, depending on the nature of the land and the transaction at hand. The rate of stamp duty payable is stipulated by statute, the Stamp Duty Act, Chapter 480 of the Laws of Kenya, and non-payment of the duty results in the invalidity of the relevant transaction and any agreement signed between the parties become null and void, and the same is inadmissible in a Court of Law as evidence.

Circumstances however do arise where property held by a family has to be transferred to a limited liability company wholly owned by members of the same family, for instance, to enable the company have access to credit facilities for business expansion. In such circumstances, requirement for payment of stamp duty would be an extra and unwarranted burden on family property without any material consideration to either party on the transfer as the transferor and the transferee are basically the same people. The law on application for stamp duty exemption therefore presents a useful strategy for avoiding unwarranted incurrence of tax.

Noteworthy is that stamp duty exemption is not the preserve of family property transactions only, and exemption may also be obtained for transactions, including but not limited to:

 

1)       transfer of land to charitable organizations  as gifts;

2)       transfer of property between spouses;

3)       transfer of family property to the members on demise of a family member in whose name the property  was registered; and

4)       Transfer of land from a Holding Company and its Subsidiaries where the holding company owns not less than ninety percent (90 %) of the shares of the subsidiary, etc.

THE LAW AND PROCEDURE

For purposes of transfer of family property to a company wholly owned by the same family, the law now envisages such circumstances by virtue of Legal Notice Number 92 of 2007 issued pursuant to section 106 of the Stamp Duty Act. The Legal Notice provides that:

“IN EXERCISE of the powers conferred by section 106 of the Stamp Duty Act, the Minister for Finance directs that any instrument that is in respect of the transfer of a family property to a limited liability company whose shares are wholly owned by the family be exempt from the provisions of the Act.”

The exemption doesn’t accrue as of right/automatically and must be applied for. The application for exemption should be made to Minister of Lands through the Collector of Stamp Duty, and must be supported by evidence, including:

1. Certified copy of List of Directors/Shareholders of the Transferee (Form CR 12);
2. Statutory Declaration by the Transferor swearing that the authorized and the issued Share Capital of the Company (the “Transferee”) is owned by the relevant family members;
3. Certified copy of Certificate of  Incorporation of the Transferee;
4. Certified copy of the Transferee’s PIN Certificate;
5. Certified copies of documents evincing degree of consanguinity, for instance, Birth Certificates for the Transferor and the shareholders of the Company;
6. Certified copy of the duly executed transfer for the Property; and
7. Certified copy of Title of the Property.

The statutory declaration must state the section of the Act and the Legal Notice relied upon in the application for exemption. The Minister, if satisfied with the evidence on record, would then issue a certificate exempting the relevant transaction from payment of Stamp Duty. Thereafter, the transfer may be presented at the relevant land registry for registration without payment of stamp duty, subject only to payment of the minimal registration charges payable to the registry.

CONCLUSION

We hope that the above will suffice your concerns in so far as stamp duty exemption on transfer of property is concerned. Nonetheless, do contact our Teddy OKELLO  at stralexgroup@gmail.com should you require further information or clarification on stamp duty exemption and related tax matters. You may also call us on +254 773 865 798 or +254 734 330 100.

Yours sincerely,

Taxlex Consulting Group - a participating tax and accounting consultancy firm in the SLS GROUP of consultancies.