The Nigerian government has made several tax reforms in recent years to boost internally generated revenue and close loopholes in the system. The latest Tax Act builds on these efforts by expanding the tax net and tightening enforcement in several key areas that directly or indirectly affect real estate.
Some of the major updates include:
- Revised Capital Gains Tax (CGT) rules
- Higher Withholding Tax (WHT) enforcement on rental income
- Broader Value Added Tax (VAT) applications
- Changes to Stamp Duties and Land Use Charge enforcement
- Introduction of new reporting obligations for property transactions
These changes are designed to improve government revenue collection, promote transparency in property ownership, and ensure that all players in the real estate value chain contribute fairly to the tax system.
1. Capital Gains Tax (CGT): Real Estate Sales Now Under Tighter Watch
Capital Gains Tax applies when you sell a property and make a profit from it. Previously, many property sellers escaped CGT due to weak enforcement and informal transactions.
Under the new Tax Act, the Federal Inland Revenue Service (FIRS) now mandates strict reporting and documentation for every property sale. Buyers and sellers are required to present evidence of tax clearance before title transfers can be approved.
Implications:
- Property sellers must now declare any profit made from sales and pay the 10% CGT.
- Real estate agents and lawyers involved in property transfers are required to ensure tax compliance before transactions are concluded.
- This could slow down informal property sales but improve transparency and investor confidence.
2. Rental Income and Withholding Tax (WHT)
Rental income has always been taxable in Nigeria, but the level of compliance was low. The new Act strengthens enforcement by requiring tenants (individuals and businesses) to deduct and remit Withholding Tax when paying rent.
What This Means:
- For residential leases, individuals are to withhold 10% of the rent and remit it to the tax authority.
- For commercial properties, businesses must deduct 10% for individuals and 5% for corporate landlords.
- Landlords must now properly account for this income when filing annual tax returns.
This reform will help capture significant revenue from Nigeria’s booming rental market, especially in major cities like Lagos, Abuja, and Port Harcourt.
3. VAT on Real Estate Services
While the sale of land and buildings is generally exempt from VAT, the services attached to real estate transactions are not. This includes agency commissions, legal documentation, valuation, and consultancy fees.
Implications for the Industry:
- Real estate agents, surveyors, and lawyers must charge VAT on their professional fees and remit it to the FIRS.
- This may slightly increase the cost of real estate transactions, but it also formalizes the service sector, improving professional credibility.
- Firms that fail to comply risk facing penalties or being blacklisted.
4. Stamp Duties and Land Use Charges: Stronger Enforcement Ahead
The government is also tightening the enforcement of stamp duties and land use charges, especially in states like Lagos and Abuja. Every property transaction — sale, lease, or transfer — now requires evidence of stamp duty payment before registration.
For Developers and Buyers:
- Ensure every agreement, from offer letters to tenancy agreements, is properly stamped.
- Failure to pay stamp duties can render contracts unenforceable in court.
- Land Use Charges are also being linked to digital property databases to prevent evasion.
The shift towards digital record-keeping will make it harder to evade taxes, but easier for legitimate investors to verify property ownership and valuation history.
5. Property Developers: New Tax Burdens and Opportunities
Developers will feel the impact of the new tax regime the most. From project conception to sale, every stage now has a clearer tax implication.
Key Areas to Watch:
- Input VAT on building materials: While materials attract VAT, developers may claim credits if registered as VAT-collecting entities.
- Company Income Tax (CIT): Profits made from real estate development are now being closely tracked, especially for companies operating multiple Special Purpose Vehicles (SPVs).
- Land Use and Infrastructure Charges: State governments are likely to adjust these rates upwards to boost revenue.
However, it’s not all bad news. Developers who structure their businesses correctly can still benefit from tax incentives in affordable housing and urban renewal projects, especially those aligned with government housing policies.
6. Impact on Property Prices and Investors
In the short term, the new Tax Act may lead to higher transaction costs, which could slightly push property prices upward. Buyers and sellers will now have to factor in VAT, stamp duties, and CGT obligations more accurately.
For investors, however, the long-term picture looks promising. A more transparent and formal real estate market means:
- Better access to financing (banks prefer documented transactions)
- Reduced fraud and land disputes
- Improved investor confidence (especially for foreign direct investments)
Transparency in taxation ultimately supports a more stable and credible property market.
7. What Real Estate Players Should Do Now
To adapt effectively to the new system, every stakeholder must take proactive steps.
For Property Owners and Landlords:
- Keep proper records of all rental income and expenses.
- Ensure taxes are filed annually and receipts are properly documented.
- Engage certified tax consultants to handle filings if necessary.
For Developers:
- Register properly with the FIRS and state tax authorities.
- Structure your business in a way that optimizes tax efficiency (for example, through approved housing schemes).
- Always include tax projections in your project feasibility studies.
For Agents and Brokers:
- Obtain a Tax Identification Number (TIN) and ensure VAT is charged on commissions.
- Educate clients about their tax obligations.
- Keep digital records of transactions to avoid penalties during audits.
8. A Digital Future for Property Taxation
One of the most notable shifts brought by the new Act is the digitalization of tax reporting and property data. Many states now use online platforms for land registration, property valuation, and tax payments.
This means:
- Reduced human interference and corruption.
- Easier verification of ownership and transaction history.
- Improved data analytics for urban planning and housing policy.
Over time, digital tax compliance will make Nigeria’s real estate market more attractive to institutional investors and diaspora Nigerians seeking safe property investments.
Nigeria’s new Tax Act is reshaping how the real estate industry operates. While it brings more responsibility for compliance and slightly higher costs, it also creates a fairer and more transparent system.
For serious investors and developers, this is an opportunity to build credibility, attract financing, and operate within a system that rewards transparency.
In the long run, the reforms could strengthen Nigeria’s property market — making it more competitive, better regulated, and more rewarding for compliant players.