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By Eugene Mukamba, Advocate

The exemptions are real — but they are narrower and more conditional than most people assume

Trust promoters love to say a family trust in Kenya is entirely tax-free. It isn’t, quite — but the exemptions that do exist are genuinely valuable, provided the trust is properly registered and structured to actually qualify for them.

Moving Assets Into the Trust Is Where the Real Relief Sits

The Finance Act 2021 introduced meaningful exemptions specifically for registered family trusts, targeted at the moment property is transferred into the trust — historically the most expensive step.

Property or shares transferred into a registered family trust are exempt from Capital Gains Tax on that transfer, and once registered, the trust deed itself benefits from stamp duty relief that would otherwise apply at the standard rate on land transactions.

What Beneficiaries Receive Tax-Free

Section 11(3A) of the Income Tax Act carves out a specific exemption for distributions from a registered family trust: amounts paid to, or applied for the benefit of, a beneficiary are not taxed on that beneficiary where the total paid out is below Kshs 10 million in the year of income, or where the amount is used exclusively for education, medical treatment, or early adulthood housing.

This is the exemption that makes a trust genuinely useful for funding a grandchild’s school fees or a young beneficiary’s first home without triggering a personal tax bill.

Where the Position Is Genuinely Less Settled

How income generated by the trust itself — rent, dividends, business income — is taxed has shifted more than once since 2021, as successive Finance Acts have revised the treatment of registered trusts.

This is not an area where a general guide can safely quote a single current rate and expect it to still be accurate by the time you read it; it is exactly the kind of detail that needs checking against the Finance Act actually in force in the year you are transacting.

The Trading Restriction Nobody Mentions

A registered family trust under the Trustees (Perpetual Succession) Act is explicitly not meant to be used for trading or running a business — that is what the tax exemptions are calibrated around.

A family that wants to hold both passive assets (land, a family home) and an active business is usually better served by a trust for the former and a separate company for the latter, rather than trying to force one structure to do both jobs.

The Practical Takeaway

The tax case for a properly registered family trust is genuinely strong — relief on funding the trust, and a real exemption for beneficiaries up to a meaningful threshold.

Where it goes wrong is families assuming the exemptions apply automatically to an unregistered arrangement, or to a trust being used to run a business it was never structured for.

Getting the classification right at the drafting stage is what determines whether these exemptions actually apply to you.