MPs back law change to hand mortgage holders tax reprieve

Proposed changes to the law will ease mortgage holders’ tax burden.

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Mortgage holders are set for an additional relief on their monthly earnings after MPs backed the proposal from the Treasury Cabinet secretary to amend the Income Tax Act, which will result in the reduction of the homeowner’s taxable income.

The government proposes to raise the annual limit for mortgage interest deductions from Sh300,000 to Sh360,000, offering mortgage holders some tax relief.

This means that mortgage holders will be allowed to deduct up to Sh30,000 from their taxable income with the remainder taxed as per normal taxation brackets.

“In order to encourage Kenyans to continue constructing their own houses, I propose to increase the limit of interest payments that qualify for mortgage relief from Sh300,000 to Sh360,000 per annum,” said Treasury Cabinet secretary Njuguna Ndung’u while reading the 2024-25 Budget on Thursday.

The proposal will see more Kenyans who are refinancing their homes get a higher tax relief, a move aimed at promoting home ownership.

Kenya has a thin retail mortgage market, estimated at 27,786 home loan accounts worth Sh261.8 billion in 2022, with an average loan size of over Sh9.2 million for banks.

High cost of mortgage has locked out low-to mid-income earners from home ownership.

Prof Ndung’u has also proposed Sh92.1 billion towards the affordable housing programme, a key pillar of President William Ruto’s bottom up economic agenda that aims at tackling the housing challenge.

The National Police, Kenya Prisons and mama mbogas (vendors) are some of the beneficiaries of the Sh92.1 billion allocation to housing, which is more than double last year’s allocation in the newly read budget for the financial year 2024-25.

The allocation rose from Sh35.2 billion that was set aside in the previous budget reading.

“The government’s commitment to turn the housing challenge into an economic opportunity to create quality jobs will be achieved through an allocation: Sh92.1 billion for housing urban development and public works,” said Prof Ndung’u.

National Police and Kenya Prisons has been allocated Sh1 billion for building their houses and another Sh1 billion for the construction of markets to roof and provide a conducive environment for, among others, fresh produce suppliers and sellers.

The Cabinet Secretary proposes Sh3 billion to the Kenya Mortgage Refinance Company to enhance its capital and support other on lending to primary mortgage lenders.

“Other key proposed allocations to the housing, urban development and public works sector include Sh3 billion to Kenya Mortgage Refinance Company, Sh32.5 billion for construction of affordable housing units, Sh15 billion for construction of social housing units, Sh1 billion for the construction of housing units for the National Police and Kenya Prison,” said Prof Ndung’u.

Last year, there was an allocation towards State officials with pool houses who received Sh932 million for the maintenance of the facilities, however, this year the proposal was not made.

The Budget for the fiscal year 2024-25, which begins on July 1 to June 30 next year, estimated at Sh3.9 trillion from Sh3.7 trillion last year, is the second of the Kenya Kwanza administration under President Ruto.

It is expected to establish his priority policies and strategies for achieving the Bottom Up Economic Transformation Agenda.

The Finance Bill 2024 proposed an affordable housing levy to be made a deductible expense meaning it will be subtracted from the total taxable income substantially reducing the amount of tax paid.

Kenyans have decried of delayed processing of title deeds and to this effect, the Cabinet secretary proposed to the floor of the house an allocation of Sh5.5 billion to aid in the speedy processing and registration of title deeds, settlement of the landless, digitisation of land registries, mapping of parcels and construction of land registries.

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