Earlier in 2026, if you owned rental property in Kenya, you probably heard some version of this headline: "Rental tax going up from 7.5% to 10%." It made the rounds in tax alerts, law firm newsletters, and property blogs for months. Here's the twist: that specific proposal didn't survive to the final law. What did pass instead is arguably more consequential for a specific group of people — and if you're a Kenyan living abroad with a rental property back home, it applies directly to you.

What the Draft Bill Actually Proposed

When the Finance Bill 2026 was first tabled in Parliament in April 2026, it did include a proposal to raise the Monthly Rental Income (MRI) tax — the simplified regime resident landlords use — from 7.5% to 10% of gross rental receipts. Since MRI is calculated on gross income with no deductions for expenses, that increase would have directly squeezed net returns for resident landlords, especially ones carrying mortgage or maintenance costs.

That proposal, along with a handful of other contentious measures, was dropped during committee review after public participation and stakeholder pushback. If you're a Kenyan resident landlord earning between KES 288,000 and KES 15 million a year in rental income, your MRI rate is still 7.5%. Nothing changed for you on this specific point.

What Did Pass: A New Tax Regime for Non-Resident Landlords

Here's the part that got far less attention than the resident MRI drama, and it matters a lot if you're part of Kenya's large diaspora community. The Finance Act 2026 introduced a brand-new Section 6B of the Income Tax Act, creating a dedicated Non-Resident Rental Income Tax (NRRT), effective 1 July 2026.

The mechanics, in plain terms:

  • Who it applies to: Individuals and companies who are not Kenyan tax residents but earn rental income from property physically located in Kenya — residential or commercial. If you're a Kenyan citizen who has lived abroad long enough to no longer qualify as a tax resident (broadly, someone who hasn't spent 183 days in Kenya in the relevant period), this applies to you, even if the property is in your own name back home.
  • The rate: 30% on gross rental income. This mirrors the withholding tax rate that already applied to non-residents under the old Section 35 framework — it's not a new, higher number, but it is a more formalised and enforceable one.
  • No deductions. This is the detail that catches people off guard. The 30% applies to the full rent received — not net income. Property management fees, security costs, repairs, mortgage interest — none of it reduces the tax bill.
  • Filing obligation: Non-resident landlords must register under a simplified KRA framework and file monthly returns, with tax due by the 20th day of the month following receipt of rent.
  • The exemption: If a resident agent collects the rent on your behalf and has already properly withheld and remitted tax under the existing Section 35(3)(j) framework, NRRT doesn't apply on top of that.

Why This Is a Bigger Deal Than It Sounds

Before this change, enforcement against non-resident landlords relied heavily on withholding tax being properly deducted by tenants or agents — a system that, in practice, had a lot of leakage. Many diaspora-owned properties were being managed informally by a relative or friend, with rent collected in cash or transferred directly, and no one was withholding anything. Section 6B changes the burden: KRA now has a direct registration and filing channel aimed specifically at identifying non-compliant non-resident landlords, rather than relying entirely on third parties to catch the tax at source.

If you've been managing a Kenyan rental property from abroad informally, this is genuinely worth sorting out before KRA's compliance net catches up to you rather than after.

The REIT Change Nobody's Talking About Enough

Buried further into the Act is a change that could matter more for Kenya's real estate financing landscape over the next few years: the removal of capital gains tax on qualifying property transfers into Real Estate Investment Trusts (REITs).

Previously, a developer or landlord looking to inject an existing property into a REIT structure could trigger a capital gains tax liability on that transfer — which made REITs a less attractive vehicle for consolidating and financing real estate assets than they should have been. Removing that tax cost doesn't guarantee a REIT boom overnight, but it does remove a real structural disincentive that has held back REIT uptake in Kenya for years.

A Small But Notable Tweak to the Housing Levy

The Act also made a minor administrative amendment to the Affordable Housing Act: up to 2% of Housing Levy collections can now be used to cover the cost of collecting the levy itself, subject to Cabinet Secretary approval. This doesn't change how much employees or employers contribute — it's purely about how the existing pool of money can be spent on administration. For most contributors, this changes nothing about their monthly deduction.

What This Means for You, Practically

  1. Resident landlords: Your MRI rate is unchanged at 7.5%. The scare headlines about a jump to 10% didn't materialise in the final Act — but keep an eye on future Finance Bills, since this kind of proposal tends to resurface.
  2. Diaspora landlords: If you own Kenyan rental property and don't meet the 183-day tax residency threshold, you're now squarely inside a formal 30% gross-income tax regime with monthly filing obligations. Talk to a tax advisor about whether your current arrangement — especially if a family member is managing the property informally — is compliant.
  3. Anyone weighing a REIT investment or REIT-based development structure: The removal of capital gains tax on qualifying transfers makes REITs a comparatively more attractive vehicle than they were a year ago, worth a second look if you'd previously dismissed the structure.
  4. Everyone: Finance Bills change materially between first tabling and final assent in Kenya — the last two cycles have both seen major proposals dropped after public participation. Don't plan your finances around a draft Bill; wait for the signed Act.

The Bottom Line

The loudest rumour about the Finance Act 2026 — a rental tax hike for resident landlords — turned out to be the part that got dropped. The quieter, more structural change — a formal 30% tax regime for non-resident landlords, plus a friendlier tax environment for REITs — is the part that will actually shape behaviour in Kenya's property market over the coming year. If you fall into either of those categories, it's worth getting proper advice rather than going by what you half-remember from a news headline back in May.

Frequently Asked Questions

Did Kenya's rental income tax increase to 10% in 2026? No — for Kenyan tax residents, the Monthly Rental Income (MRI) tax rate remained at 7.5%. The proposal to raise it to 10% was dropped from the Finance Bill before it was signed into law.

What is the Non-Resident Rental Income Tax (NRRT)? A new tax under Section 6B of the Income Tax Act, introduced by the Finance Act 2026 and effective from 1 July 2026, charging 30% on the gross rental income of non-resident landlords earning rent from Kenyan property, with no deductions allowed.

Who counts as a "non-resident" landlord for this tax? Broadly, anyone — including Kenyan citizens — who does not meet Kenya's tax residency threshold, generally based on spending fewer than 183 days in Kenya during the relevant period.

Do I need to register separately if I'm a non-resident landlord? Yes. Non-resident landlords must register under a simplified KRA framework and file monthly returns, with tax due by the 20th of the month following rent receipt — unless a resident agent is already properly withholding tax on your behalf.

Did the Finance Act 2026 change anything for REITs? Yes. It removed capital gains tax on qualifying property transfers into REIT structures, reducing a key cost barrier that had previously discouraged developers from using REITs to finance or restructure real estate assets.