Tax Act 2025: Nigeria Introduces Rent Relief to Benefit Low-Income Taxpayers
- The newly passed Tax Act in Nigeria replaces the long-standing consolidated relief allowance with a rent-based deduction mechanism
- The new provisions aim to reduce taxes for low-income earners while increasing taxes for high-income earners
- Additional eligible deductions include contributions to housing, health, pensions, and life insurance, with the first N800,000 of annual income now tax-free
Legit.ng journalist Zainab Iwayemi has 5-year-experience covering the Economy, Technology, and Capital Market
In the recently passed Tax Act, the federal government replaced the long-standing consolidated relief allowance and personal relief for individuals under Nigeria's personal income tax system with a rent-based deduction mechanism.
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The Act states that "taxable income less total deductions" is the formula used to determine an individual's total income for any given assessment year.
Under the new provisions, taxable income includes “assessable profits from trade, business, profession or vocation, employment income, investment income, profits or income from any other source, and chargeable gains from the disposal of chargeable assets.”
In place of personal relief of 20% of gross income, the old tax was calculated using a combined relief of N200,000 or 1% of gross income, whichever was higher.
In their place, people can apply for rent assistance of up to N500,000, or 20% of the annual rent paid, whichever is lower.
“Rent relief of 20% of annual rent paid, subject to a maximum of N500,000, whichever is lower, provided that the individual accurately declares the actual amount of rent paid and other relevant information as may be prescribed by the relevant tax authority,” the Act reads.
Since homeowners are not covered by the Act, the relief is only available to tenants.
Low-income earners to benefit more
According to tax expert John Nwokolo, who spoke to TheCable, the rent relief is set up to benefit low-income taxpayers while increasing taxes for high-income earners.
“The consolidated relief allowance will no longer be available for individuals in the new tax act,” Nwokolo said. “In the case of which is better between the new PAYE tax and the old, that is dicey because in this case of the new rates, those who are earning less than N25 million per annum will tend to enjoy lesser taxes, while those earning N25 million and above will tend to pay higher taxes.
“The way the act is structured, it’s structured for people earning high income to pay more taxes.
“So the rent relief is the lower of 20% of your rent and N500,000. So if your rent is 1,500,000, your rent relief would be 300,000 (20% of 1.5m) because it is lower than the 500k limit.
“If your rent is 3m, your relief will be the N500k because 20% of N3m is 600k, which is higher than the 500k limit.
“So, but then the percentage difference, it won’t be that much for those guys who are earning higher. It’s just that no matter what, they will tend to pay higher than what they would be paying using this current (old) tax rate.”
With the new tax law, an individual earning N6 million annually and paying N1 million rent yearly will get a relief of N200,000 (20 percent of N1 million), leaving the taxpayer with N5.8 million as taxable income, and an annual tax of N834,000.
In contrast, the old law offered a consolidated relief allowance of N200,000 and 20 percent personal relief, which was N1.2 million, leaving the taxpayer with taxable income of N4.6 million and an annual tax of N896,000.
This represents a reduction of N62,000 in annual tax and an additional N5,166 to the monthly take-home pay.
Other eligible deductions still recognised under the new law include contributions to the National Housing Fund (NHF), National Health Insurance Scheme (NHIS), and Pension Reform Act, as well as life insurance premiums, deferred annuities, and interest on loans for developing an owner-occupied residence.
Also, under Section 4 of the Tax Act, the first N800,000 of an individual’s annual income is now tax-free.
Landlords increase rents in Lagos
Legit.ng reported that the state administration is working to implement a flexible rent payment system that may be paid monthly, quarterly, or annually to help address the traumatising housing situation and save the state from the misery of shantytowns.
Daily Sun reported that tensions and expectations have increased throughout the real estate industry as a result.
Although the government presents the program as a way to alleviate financial strain and housing affordability, landlords consider the effects on property management and revenue stability, while tenants appreciate the reprieve from large payments.
Source: Legit.ng
