Nigerian Capital Gains Tax: Special Rules on Shares, Insurance, Compensation & Private Assets

Nigerian Capital Gains Tax: Special Rules on Shares, Insurance, Compensation & Private Assets

The Nigerian Tax Act, 2025 introduces detailed provisions on how capital gains tax (CGT) applies to individuals, businesses, and even foreign investors. These rules cover everything from disposals of shares and insurance policies to compensation payouts, private residences, and personal property. Understanding these rules is critical for compliance and financial planning.

1. Non-Residents & Ownership Transfers

Any gain made by a non-resident through the disposal of shares is chargeable if the transaction results in a change in the ownership structure of a Nigerian company or shifts ownership of assets located in Nigeria. This ensures that offshore restructurings that indirectly affect Nigerian companies or property cannot escape Nigerian taxation.

For businesses, this means foreign shareholders must carefully evaluate the tax impact of share disposals tied to Nigerian operations.

2. Life Assurance Policies & Annuities

The law provides special treatment for life assurance policies and deferred annuity contracts. Normally, no CGT arises when disposing of such interests, except if the person selling is not the original beneficiary but acquired the rights for monetary consideration.

Importantly, if a person surrenders a policy or contract, it is treated as a disposal, and the taxable value will be the higher of its market value or actual disposal proceeds.

For individuals, this means long-term contracts linked to life assurance must be carefully reviewed before surrendering or selling, as tax implications may arise.

3. Industrial Assurance & Capital Redemption Businesses

Where insurance contracts fall under capital redemption or industrial assurance businesses, disposing of those contracts creates chargeable gains. These provisions ensure businesses dealing in such insurance contracts are taxed on future-value payouts linked to premiums.

In other words, contracts tied to industrial risks or future cash obligations are not exempt from CGT.

4. Compensation for Personal Injury & Employment Loss

Compensation or damages paid to an individual for wrongs, injuries, or employment-related losses are tax-free up to ₦50 million. However, any amount beyond this threshold is taxable as a chargeable gain.

For example, if an employee receives ₦70 million in wrongful dismissal compensation, ₦20 million would be subject to CGT. Employers must deduct and remit this tax at the point of payment.

This protects individuals by offering relief but still ensures very large settlements are captured within the tax system.

5. Principal Private Residence Exemption

The Act introduces a significant relief for individuals: gains from the sale of a principal dwelling house (including up to one acre of adjoining land) are exempt from CGT. However, this exemption can only be enjoyed once in a lifetime.

If part of the residence is used for business, only the residential portion qualifies for the exemption. This means individuals should plan carefully to maximize the benefit of this once-in-a-lifetime relief.

6. Personal Chattels (Movable Property)

Everyday assets such as vehicles, furniture, and other personal movable property are also covered. If the total disposal value in a year does not exceed ₦5 million or three times the annual national minimum wage (whichever is higher), no CGT is payable.

However, if multiple assets are sold to the same buyer or connected persons, they are treated as a single transaction to prevent tax avoidance. For collections (like artworks or jewelry sets), disposals are also grouped together. Importantly, currency disposals are excluded from these provisions.

Why This Matters

For businesses, these rules close loopholes around offshore ownership structures, insurance contracts, and compensation schemes. For individuals, they provide valuable reliefs—such as the private residence exemption and thresholds for personal property—while still ensuring high-value transactions are taxed fairly.

Strategic tax planning, record-keeping, and timely compliance are essential for avoiding unexpected liabilities under these new provisions.

At Baha’s Books, we simplify complex tax laws into practical knowledge for businesses and individuals. To explore more insights on tax compliance, accounting, and financial planning, visit bahasbooks.com.

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