Income Tax on Trusts in Kenya: What the Finance Act 2026 Changed for Trustees and Beneficiaries

Income tax on trusts in Kenya changed on 1 July 2026. The Finance Act, 2026 repealed section 11 of the Income Tax Act and replaced it with a new section that taxes the trustee and, where the trustee has paid, relieves the beneficiary. Many families set up trusts under the new Trust Administration Act, 2026 without realising that the tax rules sit in a different statute. This article explains what the new section says, what it does not say, and what to check before you fund a trust.

What the new section 11 provides

Section 8 of the Finance Act, 2026 (Act No. 19 of 2026) repeals section 11 of the Income Tax Act and substitutes a new section with three limbs. Under the Act’s commencement clause, section 8 came into operation on 1 July 2026.

First, any income chargeable to tax that is received by a person as a trustee, executor or administrator is deemed to be the income of that trustee, executor or administrator. Second, qualifying dividend or qualifying interest that forms part of that income is not subject to further tax under the Act. Third, where the trustee, executor or administrator has paid tax on the chargeable income of the trust, a beneficiary is not liable to pay tax on that income.

The practical effect is that the tax is collected from the trustee, and a beneficiary who receives a distribution of income that the trustee has already taxed does not pay again. The trustee is the taxpayer for income the trust earns, which makes trustee conduct and record keeping a tax issue as well as a trust law issue.

How the old section 11 differed

The version of section 11 in the Kenya Law consolidation of the Income Tax Act to 31 December 2022 also began by deeming trust income to be the trustee’s income. It treated qualifying dividends and interest of a trustee as chargeable under section 3(2)(b) and not section 3(2)(e). It then went further and provided that amounts a beneficiary received from a trustee, or that the trustee paid out on the beneficiary’s behalf, were deemed to be the beneficiary’s income, subject to the Act, with detailed rules for grossing up. The new section 11(3) is shorter and works differently, because it ties the beneficiary’s relief to the trustee having paid the tax.

If you have an existing trust, the question to ask is whether the trustees have in fact paid tax on the trust’s income. The relief in section 11(3) depends on that payment, so a distribution from a trust that has not paid tax is not obviously protected by it.

Funding the trust: capital gains tax

Income earned by the trust is only half the picture. Moving assets into it can also be a taxable event. Paragraph 6(1)(a) of the Eighth Schedule to the Income Tax Act treats property that is sold, exchanged, conveyed or otherwise disposed of in any manner, including by way of gift, as a transfer. A settlor who gifts land or shares to a trust has therefore made a transfer for capital gains tax purposes. KRA’s published guidance gives the rate as 15% of the net gain, declared and paid by the transferor. Paragraph 6(2) of the Schedule excludes some transfers from that charge, including transfers between spouses, transfers to immediate family (defined as the children of the spouses or former spouses), transfers by a personal representative to a legatee, and transfers by a trustee to a beneficiary who becomes absolutely entitled. A gift to a trust is not listed in paragraph 6(2), but paragraph 36(g) of the First Schedule exempts the gain on property, including investment shares, that is transferred or sold for the purpose of transferring the title or the proceeds into a registered family trust. Paragraph 58 of the First Schedule, as numbered on Kenya Law, also exempts capital gains relating to the transfer of title of immovable property to a family trust. The two provisions refer respectively to a registered family trust and to a family trust, so confirm the trust’s registration before you fund it. Our article on family trust land transfers covers the position for land, together with stamp duty and Land Control Board consent.

What the Trust Administration Act does not do

Some commentary suggests that the Trust Administration Act, 2026 preserves or provides for the tax treatment of family trusts. The text of the Act does not support that. It contains no tax provisions, and Kenya Law records it as amending only the Business Registration Service Act and the Registration of Documents Act. A trust that is validly set up and registered under that Act still has to be analysed under the Income Tax Act, as amended by the Finance Act. For the choice between registered and incorporated structures, see our guide to registered or incorporated family trusts.

Points to confirm before you fund a trust

This article does not state a rate of tax for trustees, because the provisions we checked do not settle that point. The Income Tax Act provisions quoted here are from the Kenya Law consolidation to 1 July 2026, and later amendments may apply. Before funding a trust, take advice on the rate that applies to each kind of income the trust will earn and on any registration or filing duties that fall on the trustees.