The Nigerian Tax Act 2025: Implications For The Real Estate Sector

The Nigeria Tax Reform Bill was signed into law by President Bola Ahmed Tinubu on June 26, 2025, and is scheduled to take effect from January 1, 2026. While this reform touches every sector of the economy, its implications for real estate, construction, and its participants are significant. The Nigerian Tax Act 2025 introduces both opportunities and responsibilities for property owners, investors, developers, and tenants.

For the first time, all taxes related to real estate transactions, such as rental income, property sales, stamp duties, capital gains, and VAT on construction or leasing, now operate under a single, cohesive legal framework.

Below, we highlight some of the key changes made in the Nigerian tax law system and their resultant impact on the Real Estate sector:

1. Introduction of Rent Relief

The new Act introduces Rent Relief, replacing the previous Consolidated Relief Allowance and Personal Relief for individuals. Taxpayers can now claim 20% of their annual rent paid, capped at ₦500,000, provided they accurately declare rent payments and other information required by the tax authority under the Nigerian Tax Act.

In simple terms, individuals who pay rent for their personal accommodation are allowed to reduce their taxable income by an amount equal to:

• 20% of your annual rent paid, or
• ₦500,000 maximum per year.

For example, if your yearly rent is ₦1,000,000, then 20% of that is ₦200,000. Since ₦200,000 is below the ₦500,000 cap, your relief would be ₦200,000.

However, if your rent is ₦4,000,000 per year, 20% comes to ₦800,000. Because ₦800,000 is higher than the ₦500,000 limit, you can only claim the maximum relief of ₦500,000.

So What?

• Documentation is Essential: To qualify for rent relief, your rent payments must be properly documented with evidence such as receipts, bank transfer records, or a signed lease agreement showing the annual amount paid. 
• For PAYE Employees: Notify your employer of your rent payments and provide the necessary supporting documents to ensure the rent relief is applied to your tax computation.
• Rent Relief exposes Landlords to Tax on Income: If you receive rental income as a landlord, it forms part of your total taxable income and is subject to tax at your applicable marginal rate. Consequently, higher rental earnings may push you into a higher tax bracket, resulting in an increased overall tax liability.

      2. Withholding Tax Exemptions from Real Estate Investment Trusts (REITs)

Before this reform, Real Estate Investment Trusts (REITs) and Real Estate Investment Companies (REICs) were not clearly recognised in Nigeria’s tax framework. Their taxation was primarily guided by the Companies Income Tax Act for companies and the Withholding Tax for investors, leading to double taxation. 

Under Section 9(2)(d), distributions made by a real estate investment company to its shareholders from rental income and dividend income received on behalf of those shareholders shall not be subject to further tax.

So What?

• When Investors receive those dividends, they are exempt from Withholding Tax. In other words, investors no longer pay tax on income that has already been generated from real estate rental operations.

      3. Capital Gains on Property Sales are now Fully Regulated

The repealed Capital Gains Tax Act has been absorbed into the new Tax Act (Sections 33–46). Henceforth, profits made on the sale, transfer, or compulsory acquisition of land and buildings are subject to Capital Gains Tax, except in a few exempt cases, such as the sale of personal residence or charitable property. 

The law also clarifies how gains are calculated, ensuring that taxes are based on actual profit realised, not just the sale price.

So What?

• Developers and Investors must now carefully document acquisition costs, improvements, and sales costs to determine accurate taxable gains. The government, in turn, gains more predictable revenue from Nigeria’s real estate trade.

      4. Reinforcing Legal Compliance of Stamp Duties and Leases

Sections 131–135 of the Nigerian Tax Law (2025) reaffirm that property sales, leases, and tenancy agreements are chargeable instruments subject to stamp duty. Unstamped property documents are inadmissible as legal evidence, meaning buyers and landlords must ensure all property-related documents are properly stamped before registration.

So What?

• Sale agreements for land or buildings, lease agreements, deeds of assignments, mortgages, and property transfers must be stamped to be legally valid.
• All types of leases, whether residential, commercial, or industrial, now clearly fall under chargeable instruments for stamp duty. Lease agreements with an annual value of less than N10 million are exempt.
• The Act reiterates that unstamped documents are inadmissible as evidence in the court of law.

      5. VAT and Property Transactions

The new law retains Value Added Tax (VAT). However, now, it maintains a guiding principle that VAT applies only to goods and services rendered for consideration, not to the transfer of land or the letting of residential accommodation.

So What?

• The rent or sale of residential properties is exempted from VAT.
• VAT still applies to commercial properties, such as offices, shops, warehouses, malls, and short-term apartments, when operated as a business. For these, landlords or developers must charge VAT at 7.5% on rent, lease, or sale proceeds.
• VAT also applies to construction, renovation, and development services, because these are classified as “services” under the Act. Developers and construction firms must charge 7.5% VAT on: building and renovation contracts, project management or engineering services, and interior fit-outs and finishing works.
• The new Act also keeps VAT on real estate professional services, including: Agency commissions, property valuation fees, legal conveyancing charges, facility management fees, all VAT-able at 7.5%.
• The sale of bare land and land titles has been explicitly exempted from tax. If you sell an undeveloped plot or farmland, no VAT is payable.

      6. Mortgage and Housing Finance Incentives

Under Section 30(2)(a)(iv) of the Act, interest on loans for developing an owner-occupied residential house shall be deductible from the individual’s taxable income. By allowing mortgage interest deductions, the government is rewarding Nigerians who buy or build their own homes using formal loans.

Overall, the Nigeria Tax Act 2025 marks a new era of taxation in real estate. It simplifies taxation, eliminates double taxation, encourages home ownership through mortgage incentives, rental documentation, and strengthens compliance in property transactions.

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