Nigerian Capital Gains Tax: Timing, Computation, and Fair Treatment of Asset Disposals

Nigerian Capital Gains Tax: Timing, Computation, and Fair Treatment of Asset Disposals

Understanding how and when capital gains tax applies is essential for individuals and businesses in Nigeria. The Nigerian Tax Act 2025 sets clear rules on the date of acquisition or disposal, the computation of chargeable gains, the treatment of incidental costs, and how part disposals or instalment payments affect taxation.

When Is an Asset Considered Acquired or Disposed?

An asset is deemed to have been acquired or disposed of on the date a binding right or obligation arises. For instance, if a contract is conditional, the disposal date is when the condition is fulfilled. If it is unconditional, the contract date counts. In cases of options, such as call or put agreements, the disposal date is the day the option is exercised. This ensures tax is tied to the precise moment a financial interest is effectively transferred.

How Chargeable Gains Are Computed

The Act distinguishes between assets with capital allowance claims and those without.

  • For assets where capital allowance has been claimed (such as business machinery), only the residual value of the asset after allowances can be deducted from disposal proceeds.

  • For other assets, the gain is the disposal value minus acquisition costs or any money’s worth wholly and exclusively incurred in acquiring the asset.

Additionally, any incidental costs—such as legal fees, broker commissions, or valuation expenses—that are directly linked to the disposal can also be deducted to reduce taxable gains.

Treatment of Part Disposals

Where only part of an asset is sold, the law requires apportioning the acquisition cost between the disposed part and what remains. This is done by comparing the consideration received for the disposed portion with the combined value of both the disposed and undisposed parts. This method ensures fairness and prevents manipulation of asset values for tax purposes.

Instalment Payments and Deferred Consideration

If disposal proceeds are payable in instalments over more than twelve months, the gains are spread across the relevant years of assessment. Each instalment is taxed proportionately when due, aligning tax liability with actual cash flow. However, all amounts are initially included in the computation, even if contingent or uncertain. If some payments later prove irrecoverable, the tax authority can allow adjustments, ensuring taxpayers are not unfairly burdened.

Why This Matters

These rules provide certainty and fairness. They prevent manipulation of contracts to avoid tax, ensure incidental expenses are recognized, and align taxation with cash flow where payments are deferred. At the same time, they protect Nigeria’s revenue base by ensuring gains are recognized promptly and proportionately.

For businesses, investors, and individuals, understanding these provisions is vital for compliance and effective tax planning.

📖 Stay informed, stay compliant, and strengthen your financial knowledge with Bahas Books.
Visit bahasbooks.com for more insights into Nigeria’s evolving tax laws.

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