Understanding Chargeable Gains in Nigerian Tax Law
A Comprehensive Guide to Capital Taxation under the Nigeria Tax Act 2025
Imagine this: You purchase a rare, vintage comic book for ₦5,000. A few years later, a collector offers you ₦50,000 for it, and you sell. The ₦45,000 profit you made is a “gain”.
In the world of tax, certain gains like this are subject to a specific tax, separate from the tax you might pay on your salary or business income. A chargeable gain is the profit derived from the disposal of a chargeable asset, the value of which is ascertained and taxed in accordance with the specific provisions of Nigerian tax law.
Understanding this concept is fundamental as it represents a distinct pillar of taxation focusing on wealth generated from capital assets rather than ongoing activities like employment or trade. The rules for calculating gains, allowable deductions, and exemptions differ significantly from income tax, requiring a precise analytical framework.
1. The Two Pillars: “Chargeable Asset” and “Disposal”
For a chargeable gain to exist, two conditions must be met: there must be a chargeable asset, and there must be a disposal of that asset. The law defines both terms very broadly.
1.1. What Qualifies as a “Chargeable Asset”?
According to Section 34, a chargeable asset includes “all forms of property,” whether located in Nigeria or elsewhere. Key examples include:
- Shares, options, rights, debts, and incorporeal property.
- Digital or virtual assets.
- Any currency other than Nigerian currency.
- Property created by the disposer or owned without being acquired.
1.2. What Constitutes a “Disposal”?
In tax law, “disposal” is broader than a simple sale. Section 35 clarifies that a disposal occurs whenever a sum is derived from an asset, even if the person paying the sum doesn’t acquire it. Actions constituting a disposal include:
- Sale, lease, transfer, or assignment.
- Compulsory acquisition by an authority.
- Insurance payouts or compensation for loss, destruction, or damage.
- Sums received for surrendering rights or refraining from exercising a right.
2. Key Exemptions: When is a Gain NOT Chargeable?
Knowing exceptions is as critical as understanding the primary rule. Below are the key situations where a gain is not chargeable according to the Act:
| Exempt Asset/Situation | Key Conditions and Limitations |
|---|---|
| Private Motor Vehicles | Must be used solely for private/non-profit purposes. Limited to the disposal of not more than two vehicles per individual in any year of assessment. (Section 53) |
| Certain Gifts | Requires a “double gift” scenario: the disposal must be a gift, and the asset must have been originally acquired as a gift. No consideration can be paid or received. (Section 54) |
| Small-Scale Share Disposals | Exempt if: 1. Aggregate proceeds are < ₦150,000,000 AND gain is < ₦10,000,000 in 12 months; OR 2. Proceeds are fully reinvested in other Nigerian company shares within the same year. (Section 34) |
| Personal Injury Compensation | Compensation for injury, libel, or slander is not chargeable if the amount is ₦50,000,000 or less. Amounts exceeding this threshold are chargeable. (Section 50) |
| Certain Life Assurance Policies | Gains from life assurance or deferred annuities are exempt unless the disposer was not the original beneficial owner and acquired the rights for “money or money’s worth.” (Section 48) |
| Assets in Charitable Trusts | Gains do not accrue to the institution (religious/charitable). Instead, they are deemed to have accrued to the trustees, who are liable for the tax. (Section 55) |
3. Conclusion: Core Principles for Future Reference
Keep these three core principles in mind to navigate the complexities of chargeable gains:
- Gain = Disposal Value Minus Acquisition Cost: The tax is levied on profit. Deduct the total cost of acquiring the asset (including incidental costs) from the value received upon disposal.
- “Asset” and “Disposal” Are Broad Terms: The law intentionally uses wide terms to capture everything from physical items to digital assets and transaction types like compensation payments.
- Exemptions are Crucial: Distinguishing between taxable and non-taxable events depends heavily on knowing specific exclusions for items like private vehicles, small share transactions, and personal injury awards.
Understanding these principles ensures a practical and precise analysis of any capital transaction under the Nigeria Tax Act 2025.
Analogy: Think of Chargeable Gains Tax like a “growth fee” on a tree you planted. While the fruit it produces annually might be taxed as income, the tax on the gain only applies when you decide to sell the entire tree (or a branch of it) for more than it cost you to plant and nurture it.
