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Computation of Rental Tax in Uganda - FY2023-2024

CPA Innocent MUGISHA
Apr 10, 2024
5 min read
Rental Income Tax
CPA Innocent MUGISHA

Section 5(1) of the income tax Act Cap 340 of the laws of Uganda imposes rental income tax for each year of income on every person who has chargeable income for the year of income.

In this article, we discuss the step by step process in computing accurately the rental income tax liability of a resident individual as per the income tax (amendment) bill 2023/2024 of the tax laws of Uganda.

CPA Uganda April Intake
Rental Tax Explained

This is tax levied on income earned by a person from letting out immovable property (land and buildings) in Uganda. For income tax purposes, it does not matter whether the building is let out as a residence or for commercial use. Property is let out by a landlord or landlady to another person also known as a tenant for a consideration.


A person (landlord or landlady) may take the form of an individual e.g Robert Wamala, a corporate body e.g., RORA Properties Ltd, Government e.g Luwero District Administration, an institution e.g. Makerere University, or a listed institution such as Deposit Protection Fund of Uganda. In this article, we are mainly going to focus on the taxation of individuals.


Taxation of Rental Income is provided for under S. 5 of the Income Tax Act. This is rent earned by persons and is segregated and taxed separately as though it were the only source of income for the taxpayer.


Tax law provisions in the computation of Rental Tax for an individual

  • In determining the tax due for individuals, the threshold for payment of tax is Shs. 2,820,000 and no other deductions are allowed.

  • Tax is charged at a flat rate of 12% for individuals and 30% for non- individuals.


Steps in Computation of Rental Tax for an individual

In computing individual rental tax for a resident individual, the following steps are

considered:


Step I:

Determine the total annual gross rents from all sources of the individual;


Step II:

Deduct the threshold of Shs.2, 820,000; therefore chargeable rental income =

R-2,820,000


Step III:

Determine rental income tax at 12% i.e. 12 %( R-2,820,000)

CPA Uganda April Intake 2024

Acul Ocolo earned annual rent of: Shs 3,500,000 from a house in Kitintale, Shs 900,000 from a house in Kabale and Shs 600,000 from a house in Lyantonde. He is charged an annual interest of 500,000 on a mortgage he got from the bank to build the houses. Acul Ocolo incurred Shs. 4,000,000 as expenses in generating the rental income.


Required

Determine the Rental tax payable



SOLUTION:


The rental tax is computed as follows:


Step I:

Determine the total annual gross rents from all sources of the individual Gross

rental income = 3,500,000 + 900,000 + 600,000 = 5,000,000


Step II:

Deduct the threshold of Shs.2, 820,000 = 5,000,000-2,820,000

Therefore chargeable income= 2,180,000

Note: No other deductions allowed


Step III:

Determine rental income tax at 12%

So 12% X 2,180,000 = 261,600


Rental tax payable = Shs. 261,600

CPA Innocent MUGISHA

CPA Innocent Mugisha is a Professor of Finance and Accounting with over 10 years experience in teaching Accounting and Finance related courses including Financial Accounting both at University and Professional level. His qualifications are: PhD (candidate), MBA(Finance), CPA(U), FCCA, CIPS, CTA and BCOM (Accounting). Innocent has also published various books on most topics in Accounting and Finance for Business and Professional Studies.

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CPA Innocent MUGISHA
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