Do you plan selling personal property to fund your business? What you need to know about Capital Gains Tax under Nigeria’s new CGT Framework.
A frequently asked question in tax practice, and one that is widely misunderstood, is whether Capital Gains Tax (CGT) is payable when an individual sells personal property to raise capital for a business.
While the question appears straightforward, the legal and policy answer necessitates careful analysis, particularly in light of Nigeria’s new Capital Gains Tax framework, effective from 1 January 2026.
This article aims to clarify this issue, dispel common misconceptions, and explain the practical application of the reformed CGT regime.
The Core Principle: Purpose Does Not Determine Taxability
Under Nigerian tax law, CGT is not initiated by the purpose of a disposal, but by the nature of the asset disposed of and whether a chargeable gain arises. The legal relevance of the proceeds, whether used to start a business, expand an existing one, or meet personal obligations, is negligible.
This principle has remained consistent and continues under the reformed CGT regime. The law operates on objective rules applied to objectively defined assets, rather than rewarding or penalising intention.
Personal Assets Exempt from CGT
Certain categories of personal property are expressly excluded from CGT. The sale of these assets by an individual does not attract CGT, irrespective of the amount realised or how the proceeds are applied. These include:
Private motor vehicles
Household goods and personal effects
Clothing and everyday personal-use items
Other wasting assets held for personal use
If such assets are sold to raise business capital, the transaction remains CGT-exempt because the assets themselves are not considered chargeable assets under the law.
Personal Assets Subject to CGT
The situation changes significantly when the asset sold is a store of value or an investment asset, even if held personally. CGT will apply if an individual disposes of:
Land and buildings
Shares, stocks, and securities
Investment properties
Other capital assets capable of appreciation
In such cases, any gain realised is potentially subject to CGT, even if the proceeds are reinvested into a business. Selling land to fund a startup or disposing of shares to inject working capital into a company does not, in itself, eliminate CGT exposure.
Changes and Continuities Under the New CGT Framework
The reformed CGT regime represents a significant policy enhancement but does not abolish CGT on personal asset disposals. Instead, it introduces greater fairness, balance, and economic realism.
Key Improvements:
Progressive Tax Treatment: The former flat 10% CGT rate has been replaced with progressive income tax rates (0%–30%), aligning tax outcomes with the taxpayer’s overall income or profit profile.
Recognition of Losses: Realised capital losses are now deductible, preventing taxpayers from being taxed on net losses.
Allowable Deductions: Legitimate transaction costs, such as brokerage fees, regulatory levies, and incidental investment expenses, are now deductible.
Investor Protection: Clear thresholds are established to protect small investors, while institutional investors and small companies benefit from targeted exemptions.
What Has Not Changed:
CGT continues to apply to chargeable assets.
The use of sale proceeds, including reinvestment into a business, does not automatically grant an exemption.
Reliefs are applicable only when specific statutory conditions are met.
Reinvestment Relief: A Limited but Valuable Opportunity
Reinvestment relief is one of the most frequently misunderstood aspects of the reform. Under the new framework, reinvesting proceeds into shares of Nigerian companies within 12 months may qualify for full CGT exemption, even if general exemption thresholds are exceeded.
However, this relief:
Is not automatic.
Applies specifically to qualifying reinvestments, primarily within the capital market.
Requires strict adherence to timing, documentation, and regulatory guidance.
Reinvesting proceeds into a private business asset or general business operations does not, on its own, qualify for this exemption.
Transitional Protection and Cost Base Reset
To avert retrospective taxation, the new regime resets the cost base for existing investments to the higher of the actual acquisition cost or the market value as of 31 December 2025. This measure ensures that gains accrued before the commencement of the new legislation are not taxed unfairly.
This transitional rule is crucial for fostering investor confidence and market stability.
Enhanced Importance of Compliance
The reformed CGT framework places a greater emphasis on compliance and documentation. Taxpayers must now exercise increased diligence regarding:
Asset classification
Acquisition and disposal records
Valuations and cost documentation
Filing deadlines and jurisdictional considerations (state versus federal)
Many CGT disputes arise not from excessive tax rates, but from inadequate record-keeping and delayed engagement with professional advisers.
Conclusion
Selling personal property to raise capital for a business does not automatically trigger Capital Gains Tax, nor does it automatically exempt the transaction.
The critical determinant is the nature of the asset sold, not the purpose of the sale. Under Nigeria’s new CGT framework, the law is more equitable, nuanced, and aligned with investment realities, while remaining precise.
CGT is most manageable when understood prior to a transaction, rather than discovered thereafter. Proper asset classification, proactive planning, and informed reinvestment decisions are the most effective strategies for managing CGT exposure under the new regime.
Dr. Austin Ejaife
Tax Consultant | Auditor | Financial Reporting Specialist.