Leaving the Monthly Rental Income regime
Whether a Kenyan residential landlord should elect out of Monthly Rental Income tax into the annual regime, what changes, and the questions that decide it.
By Achekam · · 4 min read · For Running a business businesses in Kenya
Kenya's Monthly Rental Income regime has one great virtue: it is simple. A flat percentage of the rent, every month, with nothing to calculate. For a landlord whose building costs little to run, that simplicity is worth a great deal.
For other landlords, the same simplicity is expensive. A landlord paying interest on the loan that bought the block, rebuilding a roof, or carrying flats that stood empty for half the year pays tax on gross rent regardless, even in a year when the property made no money at all. The law allows such landlords to choose a different route. This article explains the election, what changes, and the questions that should settle the decision.
The written election
KRA says a landlord may elect, by written notice to the Commissioner, not to be taxed under the Monthly Rental Income regime, in which case the annual income tax regime applies.
The election is a formal step: written, and addressed to the Commissioner. Keep a copy, with proof of when and how it was delivered. KRA's summary does not say from which period an election takes effect, or whether and when a landlord can return to the monthly regime, so ask KRA, or your adviser, both questions before sending it.
A final tax with no deductions, against the annual regime
Under the monthly regime, KRA says the tax is 7.5% of gross rent, effective 1 January 2024, as a final tax with no deduction for expenses, losses or capital allowances. That sentence is the whole case for and against it.
Under the annual regime, the rent goes into the landlord's annual income tax return and is taxed at the normal income tax rates, as KRA says of commercial rent. That is where the landlord's costs can come into play: the return works on income under the annual rules rather than on gross rent alone. Which costs are allowable, and how, is a question to settle with a tax adviser using your own figures, because the comparison only means something with real numbers.
In words, the trade-off is this. A landlord with modest costs is likely to find the monthly regime cheaper and far easier. A landlord with heavy costs, finance charges or a loss-making year may pay less tax under the annual regime, at the price of keeping full accounts and filing a proper annual return.
Landlords who have no choice
For some landlords, the decision is already made. KRA says the monthly regime does not apply to rent from commercial property, to non-resident landlords, or to landlords earning more than 15,000,000 a year. Landlords above Kshs 15 million declare the rent in their annual income tax return instead.
So the election is a question only for resident landlords with residential rent inside the regime's band. For the monthly regime itself and how it is filed, see Monthly Rental Income tax for landlords. Commercial lettings follow their own rules, covered in tax on commercial rent.
Filing deadlines in the annual regime
Moving to the annual regime changes the calendar. Kenyan individual tax returns are due by 30 June, moving to 30 April from 1 January 2027, first for the 2026 year of income. For companies, KRA says the corporation tax return is filed on or before the end of the sixth month after the end of the accounting period, the same timetable it gives for declaring commercial rental income in the annual return.
The annual regime can also bring instalment tax. KRA says instalment tax is payable by every person subject to tax, other than turnover tax payers, and that individuals pay it where their tax not covered by PAYE is over Kshs 40,000 for the year. A landlord whose rental profit produces tax above that level will be paying during the year as well as at the end; paying Kenyan instalment tax on time explains the dates.
Profit figures and depreciation in Achekam
The annual regime runs on accounts, and Achekam can produce them. Management accounts show an income statement for a chosen period beside the period before, and a balance sheet at period end, both added up from the business's own journals and exportable as PDF or CSV. One detail: the year-to-date preset starts on 1 January, not on the business's own year start, so a company landlord with a different year end should choose its dates by hand.
For the building and its fittings, the fixed-asset register adds assets at cost, depreciates them monthly by straight line or reducing balance with a journal each month, and posts the profit or loss on disposal. Tax wear-and-tear is not worked out, so the capital allowances for the tax return must be computed separately. The register is not part of Business Essentials.
Questions that settle the decision
- Are you eligible to choose? Resident landlord, residential property, rent within the regime's band.
- How large are your running costs compared with the rent?
- Do you carry finance costs on the property, or expect a year with major repairs or long vacancies?
- Can you keep full accounts and file an annual return on time?
- Will instalment tax apply once the rent is taxed annually?
- From when does the election take effect, and can you return to the monthly regime later? Ask before you elect.
- What do the numbers say? Ask your adviser to compare both regimes on last year's actual figures.
KRA's page on residential rental income explains who qualifies for the monthly regime, the annual rent band and the final tax rate on gross rent, and is the place to confirm the current position before you write to the Commissioner.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
