Understanding Nigeria’s New Tax Laws for the Housing Market (With Examples)
Nigeria's recently enacted Tax Act of 2025 (NTA 2025), effective January 1, 2026, marks a significant overhaul of the nation's fiscal laws. The legislation consolidates and modernises a complex tax regime, introducing key reforms that will reshape costs and incentives for individuals, investors, and businesses within the housing and construction sectors. This analysis details the critical changes and their strategic implications.
The NTA 2025 introduces several provisions that directly affect individuals and their property-related finances, with a clear focus on formalisation and affordability.
New Rent Relief for Individuals
The Act redefines how an individual’s chargeable income is calculated. It introduces a new deductible rent relief for tenants. This relief allows individuals to deduct from their total income the lower of ₦200,000 or 20% of the annual rent paid, contingent on a verifiable declaration of the rent. This measure replaces the previous Consolidated Relief Allowance (CRA) and is designed to provide direct financial relief to renters, potentially enhancing affordability and supporting the formal rental market.
Example:
If a tenant pays ₦2,000,000 annually in rent, 20% of this amount is ₦400,000. Since the law caps the deduction at the lower of ₦200,000 or 20%, the tenant can deduct ₦200,000 from their taxable income.
If another tenant pays ₦600,000 annually, 20% equals ₦120,000. Here, the tenant can deduct ₦120,000, since it is lower than ₦200,000.
This reduces the taxable income of tenants and improves affordability in the rental market.
Stamp Duty: A Tenor-Based Structure
The legislation provides clarity on stamp duty for leases, codifying a tenor-based rate structure. This replaces the often-confused flat-rate system with a graduated scale:
Leases under 7 years: 0.78% of the consideration.
Leases between 8 and 21 years: 3%.
Additionally, the Act exempts small-value property transactions below ₦10 million. It is a compliance requirement that all documents must be stamped within 30 days of execution.
Example:
For a 5-year lease agreement with an annual rent of ₦2,000,000 (total consideration = ₦10,000,000), stamp duty = 0.78% × ₦10,000,000 = ₦78,000.
For a 15-year lease with the same annual rent, total consideration = ₦30,000,000. Stamp duty = 3% × ₦30,000,000 = ₦900,000.
This makes longer leases more expensive to formalise, but also provides clarity to landlords and tenants.
VAT and Withholding Tax on Rent
The NTA 2025 reaffirms that rental income from real property is not subject to VAT. This distinction is based on the legal principle that a lease is a transfer of an interest in land, not a supply of goods or services. This means landlords should not charge VAT on rent. However, the 10% withholding tax (WHT) on rent remains unchanged and is deductible at the source for corporate payers.
Example:
If a company rents an office space for ₦5,000,000 annually, it must withhold 10% = ₦500,000 and remit this to the tax authority, paying the landlord the balance of ₦4,500,000.
For an individual tenant renting a house, WHT does not apply unless the payment is structured through a corporate entity.
Key Changes for the Construction and Investment Sectors
The reforms extend beyond direct property ownership, introducing strategic changes for the broader construction and investment landscape.
Withholding Tax on Construction Services
In a significant policy shift aimed at bolstering local industry, the Act revises the WHT(Withholding tax) rates for construction services. The rate for local contractors has been decreased from 2.5% to 2%, providing a clear financial advantage and encouraging growth in the domestic sector. Conversely, the WHT rate for non-resident contractors has been increased from 2.5% to 5%. This differentiation is a strategic move to alleviate financial strain on local firms and give them a competitive edge over international counterparts.
Example:
A local contractor executing a ₦100 million project would face WHT of 2% = ₦2 million, instead of the old ₦2.5 million.
A foreign contractor executing the same project would now pay WHT of 5% = ₦5 million, up from ₦2.5 million.
This creates a significant cost differential that favors local contractors.
Capital Gains and State-Level Levies
The Act does not alter the core 10% capital gains tax (CGT) on property disposals, but it must be viewed in conjunction with the Finance Act 2023, which allows capital losses to be carried forward for up to five years. This provides a valuable tool for developers and investors to manage tax liabilities and enhance efficiency.
Example:
If a developer sells a property and realises a gain of ₦50 million, the CGT is 10% = ₦5 million.
If the developer had recorded a capital loss of ₦20 million from a previous project, they can offset this, reducing taxable gains to ₦30 million and CGT liability to ₦3 million.
It is important to note that these federal reforms do not displace state-specific charges. For instance, the Lagos State Land Use Charge (LUC) remains a separate and material expense. Property owners in Lagos, for example, can still benefit from a 15% discount for early payment of their 2025 LUC bills, a key consideration for cash flow management.
Example:
A property with a LUC bill of ₦1,000,000 qualifies for a 15% discount if paid early. The owner would pay ₦850,000 instead of ₦1,000,000, saving ₦150,000.
Conclusion
The NTA 2025 represents a comprehensive effort to modernise Nigeria’s tax system. For the real estate and construction sectors, the reforms create a new operational environment characterised by clearer rules and differentiated incentives.
The key highlights for stakeholders are a new tenant-side rent relief, codified stamp-duty rates, and a revised WHT structure that explicitly favours local contractors.
