Real estate business or property development continues to be a highly lucrative source of income and a big deal in Nigeria. Although lucrative, it comes with an enormous financial responsibility and with the new tax regime, many property owners and corporations are fine-tuning their fiscal modalities to fit into the current tax system. Therefore, the focus of this article is to understand the Nigerian property tax system and address the question: What property taxes do landlords and tenants pay in Nigeria?
What is property tax?
Property tax is an annual tax imposed by the government on developed properties, based on their assessed value. This tax is managed and collected by either the state or local government, depending on the specific type of property tax recognised in the area where the property is located. Essentially, anyone who owns land, a home, or a commercial building is legally obligated to pay property taxes to their respective state or local government.
Property tax is an essential source of revenue for Nigeria. When effectively administered, it can strengthen public finances and provide sustainable funding for infrastructure, social services, and broader improvements in the welfare of citizens.
What property taxes do Landlords and Tenants pay?
The types of property tax liabilities enforceable in Nigeria are as follows:
1. Land Use Charge
It is a unified property tax system that consolidates the payment of various property-related charges, such as ground rent, tenement rate, land registration fee, governor’s consent, stamp duty, etc., into a single fee. Property owners are liable to pay this type of tax annually in States where it is enforced, depending on the value and type of property. Land use charge is mainly imposed in States such as Lagos, Ogun, Osun, etc., at different rates, with Lagos being 0.0394% for both commercial and residential properties. It is calculated based on different factors such as size, location and purpose of the property.
2. Tenement Rate
A tenement rate is a type of property tax applied to developed and occupied properties. This tax is not applicable to undeveloped properties or bare land, nor is it charged based on property ownership. Instead, it is levied on the occupier or tenant, depending on who is occupying the property during a specific time period, as determined by the local government. If the occupier is a tenant, the tenement rate and any additional charges will be outlined in the tenancy agreement. The tax is calculated based on the rental value of the property. Tenement rates are primarily imposed in states that have not adopted the Land Use Charge system, such as Kano and Rivers.
3. Ground Rent
Just like the tenement rate, ground rent is imposed in States where the Land Use Charge is not applicable. It is an annual statutory payment by a person who acquired the right of occupancy, typically a landlord. It is paid to the State government as custodians of State land provided under the Land Use Act.[1]
4. Capital Gains Tax
When a person acquires or disposes of land or property through sale, lease, transfer, or assignment, the gains or profits from such transactions are subject to capital gains tax..[2]In other words, this tax liability is borne by the landlord or owner of the property. Gains derived from companies are charged at 30%, no longer 10%, while individuals are charged based on their personal income tax bracket.
5. Tax on Rental Income
This is taxed on rental income generated from the lease or rent of a property after deduction of allowable expenses. However, it must be noted that the new tax law provides for a rent relief of 20% of the annual rent paid.[3] To enjoy this tax relief, the individual is expected to provide evidence of actual rent paid to the relevant tax authority, which may include a tenancy agreement, receipts or bank transfer receipts.
6. Stamp duty
This is a tax imposed on documents and instruments evidencing the transfer of title in property transactions. It is usually the person acquiring title to the property, which in most cases is the landlord. The rate is usually determined by the value of the property and is imposed by the Federal Government.
7. Withholding Tax on Rent
Where the tenant is an employer of labour, either as an individual paying personal income tax or a company subject to company income tax, such tenant is required to deduct 10% tax on rent paid. This is remitted to the tax authority for computation.
Do Tenants Pay Taxes?
In states where the Land Use Charge (LUC) system is not enforced, tenants who occupy property are expected to pay tenement rates. However, in states where the LUC system is in effect, the property tax liability falls directly on the landlord. Tenants who employ labour, whether as individuals or corporations, are legally required to remit a 10% withholding tax on rent to the government. Additionally, tenants may indirectly share in the tax burden through costs such as stamp duty, which is based on the rental agreement.
Conclusion
In Nigeria, property taxes are mainly the responsibility of landlords, who are legally required to pay charges such as the Land Use Charge, tenement rate, and ground rent. Tenants, on the other hand, typically do not pay these taxes directly, although they may face additional costs like VAT, stamp duty, or withholding tax in commercial arrangements. Understanding these obligations is essential for both landlords and tenants, as it helps them manage their financial responsibilities and ensures compliance with Nigeria’s property and tax laws.
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[1] Section 1 Land Use Act
[2] Sections 33 and 34 of the Nigeria Tax Act 2025
[3] Section 30 Nigeria Tax Act 2025
