Selling Personal Property to Fund a Business:Understanding Capital Gains Tax Under Nigeria’s New CGT Framework. In tax practice, few questions arise frequently and are as widely misunderstood.For example, If an individual sells personal property to raise capital for a business, is Capital Gains Tax (CGT) payable?
The question appears simple, but the legal and policy answer requires careful analysis, particularly in light of Nigeria’s new Capital Gains Tax framework effective from 1 January 2026.
This article clarifies the issue, dispels common misconceptions, and explains how the reformed CGT regime applies in practical terms.
1. The Core Principle: Purpose Does Not Determine Taxability
Under Nigerian tax law, CGT is not triggered by the purpose of a disposal, but by the nature of the asset disposed off and whether a chargeable gain arises. Whether the proceeds are used to start a business, expand an existing one, or meet personal obligations is legally irrelevant.
This principle has remained consistent over time and continues under the reformed CGT regime. The law does not reward or penalise intention; it applies objective rules to objectively defined assets.
2. Personal Assets That Are Outside the CGT Net
Certain categories of personal property are expressly excluded from CGT. Where an individual sells these assets, no CGT arises, regardless 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 chargeable assets under the law.
3. Personal Assets That Trigger CGT
The position changes materially once the asset sold is a store of value or investment asset, even if it is held personally. CGT will apply where an individual disposes of:
- Land and buildings
- Shares, stocks, and securities
- Investment properties
- Other capital assets capable of appreciation
In these cases, any gain realised is potentially subject to CGT, notwithstanding that 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, on its own, remove CGT exposure.
4. What the New CGT Framework Changes and What It Does Not
The reformed CGT regime represents a significant policy improvement, but it does not abolish CGT on personal asset disposals. Instead, it introduces fairness, balance, and economic realism.
Key Improvements
- Progressive tax treatment: The former flat 10% CGT is 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 can now be deducted, ensuring taxpayers are not 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 protect small investors, while institutional investors and small companies benefit from targeted exemptions.
What Has Not Changed
- CGT still applies to chargeable assets.
- The use of sale proceeds (including reinvestment into a business) does not automatically create an exemption.
- Reliefs apply only where specific statutory conditions are met.
5. Reinvestment Relief: A Narrow but Valuable Window
One of the most misunderstood aspects of the reform is reinvestment relief. Under the new framework, reinvestment of proceeds into shares of Nigerian companies within 12 months may qualify for full CGT exemption, even where general exemption thresholds are exceeded.
However, this relief:
- Is not automatic
- Applies specifically to qualifying reinvestments, principally within the capital market
- Requires strict compliance with timing, documentation, and regulatory guidance
- Reinvesting proceeds into a private business asset or general business operations does not, by itself, trigger this exemption.
6. Transitional Protection and Cost Base Reset
To prevent retrospective taxation, the new regime resets the cost base for existing investments to the higher of actual acquisition cost or market value as at 31 December 2025. This ensures that gains accrued before the commencement of the new law are not unfairly taxed.
This transitional rule is central to investor confidence and market stability.
7. Compliance Matters More Than Ever
The reformed CGT framework places greater emphasis on compliance and documentation. Taxpayers must now pay closer attention to:
- Asset classification
- Acquisition and disposal records
- Valuations and cost documentation
- Filing deadlines and jurisdiction (state vs federal)
- Many CGT disputes arise not from excessive tax rates, but from poor record-keeping and late engagement with advisers.
Conclusion
Selling personal property to raise capital for a business does not automatically attract Capital Gains Tax, nor does it automatically exempt the transaction.
The decisive factor is what asset is sold, not why it is sold. Under Nigeria’s new CGT framework, the law is fairer, more nuanced, and more aligned with investment realities—but it remains precise.
CGT is least burdensome when it is understood before the transaction, not discovered after it. Proper classification, early planning, and informed reinvestment decisions remain the most effective tools for managing CGT exposure under the new regime.
Olatunji Abdulrazaq CNA, ACTI, ACIArb(UK)
Founder/CEO,Taxmobile.Online
