A. Introduction

The Finance Act 2021 dated 30th June 2021 (“the Act”) has amended various tax-related laws including the Income Tax Act and the Stamp Duty Act. One of the major changes introduced in these Acts is the tax reliefs for registered family trusts, which is seen as a move to promote the use of family trusts particularly as a mode of estate planning.

  • B. Amendments to the Income Tax Act and Stamp Duty Act
          •    1. Income Tax Act, Cap. 470

The changes introduced by the Act in relation to registered family trusts are as follows:

  •       a. Certain income received by beneficiaries of a registered trust exempt from income tax

Previously, any income received by a beneficiary from a trustee was deemed as the income of the beneficiary and was subject to tax. The amendment excludes from income tax the following income received by a beneficiary or paid out on behalf of a beneficiary from a registered trust:

  1. Any amount paid out of the trust income on behalf of any beneficiary that is used exclusively for the purpose of education, medical treatment or early adulthood housing;
  2. Income paid to any beneficiary which is collectively below ten million shillings in the year of income;
  3. Any other amount that the Commissioner may prescribe from time to time.

It is important to note that the amendment refers to a ‘registered trust’ not a ‘registered family trust’. This is a broader term and, if strictly interpreted, it increases the base of persons who can benefit from the tax relief.

  •       b. Inclusion of ‘registered family trust’ in the definition of ‘settlement’ under Sections 25 and 26 of the Income Tax Act

Section 25 provides how income from a settlement paid to the child of a settlor should be treated in tax. It states that income from any settlement paid to or for the benefit of the child (under 18 years) of a settlor during the life of a settlor is deemed as the income of the settlor for purposes of tax. The Act amends section 25 (7) by introducing ‘registered family trust’ in the definition of settlement. This effectively makes the income derived from the transfer of assets through a registered family trust the income of the settlor under the section and therefore subject to income tax.

Section 26, on the other hand, discusses how income from a settlement paid to persons other than the child of a settlor should be treated in tax. Such income, similar to Section 25, will be deemed as the income of the settlor for income tax purposes. Section 26(5) is amended by excluding a registered family trust from the definition of a settlement. The effect of this is that the income from a registered family trust is excluded from being deemed an income of the settlor and is therefore not subject to income tax when paid to persons other than the child of a settlor, as provided under this section.

  •       c. Exemption of income from registered family trusts from tax

The First Schedule of the Income Tax Act lists the various forms of income that are exempt from income tax. The Act has amended Paragraph 36 of the First Schedule and has introduced Paragraphs 57 and 58 in the First Schedule.

The effect of these amendments is that the following are now exempt from income tax:

  1. Property, including investment shares, which is transferred or sold for the purpose of transferring title or the proceeds into a registered family trust;
  2. Income or principal sum of a registered family trust; and
  3. Any capital gains relating to the transfer of title of immovable property to a family trust.

   2. Stamp Duty Act, Cap. 480

Section 52 of Stamp Duty Act provides that stamp duty is payable for any transfer of property made as a gift during the life of the owner of the property, except for the transactions provided under Section 52(2). The Act has amended Section 52(2) of the Stamp Duty Act to include any transfer of property to a registered family trust. Therefore, any transfer made to a registered family trust as a gift under this section will be exempt from stamp duty.

A further amendment is introduced in section 117 of the Stamp Duty Act which contains a list of transactions/documents that are exempt from stamp duty. Section 117 (1) (h) is amended by the Act by introducing a registered family trust as an exemption to stamp duty in addition to a will, codicil or other testamentary disposition. It is our interpretation that the intention of this amendment is to exempt the trust deed of a registered family trust from stamp duty payment.

  • C. Our View on the Amendments

While the tax reliefs discussed above are welcome, and indeed a pleasant surprise, it may prove difficult for Kenyans to access them because of various gaps in the law, including:

  1. Lack of a definition of the term ‘Family Trusts’ – It is unclear what qualifies as a family trust in Kenya from the provisions of the amended Acts and the current laws on trusts and perpetual succession;
  2. It is not clear how a family trust should be registered – The tax reliefs only apply to registered family trusts yet it is not clear how a family trust should be registered. For instance, is it enough for the Trust Deed to be registered under the Registration of Documents Act or should the Trustees be incorporated for the Trust to be considered registered?
  3. It is also not clear how registered family trusts will access the tax reliefs – Is it automatic or must they make an application and obtain a tax exemption certificate?

Nonetheless, the tax reliefs are a step in the right direction and the gaps in law can be cured by further amendments to the existing laws on trusts and succession and the development of respective regulations. For example, the Trustees (Perpetual Succession) (Amendment) Bill 2021 that is currently under review in Parliament will shed more light on the concept of family trusts, if passed into law.

D. About ‘Family Trusts’

As seen above, no definition of ‘family trust’ or ‘registered family trust’ has been provided by the Act.

However, the Trustees (Perpetual Succession) (Amendment) Bill 2021 proposes a definition of ‘family trust’. According to this Bill, a family trust is “a trust whether living or testamentary, partly charitable or non-charitable, that is registered or incorporated by any person or persons, whether jointly or as an individual, for the purposes of planning or managing their personal estate”. The Bill also provides that a family trust shall be:

  1. made in contemplation of other beneficiaries other than the settlor, whether such intended beneficiaries are directly related to the settlor or not, or are living or not;
  2. made for the purpose of preservation or creation of wealth for multiple generations; and
  3. a non-trading entity.

The Perpetuities and Accumulations (Amendment) Bill 2021 also has a provision regarding a family trust. It proposes that any reference to perpetuity period will not apply to family trusts. Currently, the maximum period for which a trust can last is 80 years. If this Bill is passed, the amendment would remove restrictions on the period of a family trust which can therefore run for as long as the settlor wants it too.

The two Bills are under review in Parliament. Therefore, the proposed amendments, including the definition family trust, are not yet in force which means that the gaps in law regarding family trusts will remain until the Bills are passed into law.

  • E. Conclusion

In conclusion, despite the gaps in law that have been identified, the tax reliefs introduced for registered family trusts will encourage and promote estate planning in Kenya through the use of family trusts. There is however need for regulations and further amendments to the law to clarify family trusts, their registration and how they can access the available tax reliefs.

Article by Ivyn Makena and Lovin Olang

Published on 10th August 2021


This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it., This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.    

Pin It