FG Abolishes Personal Relief, Consolidated Allowance in Favour of Rent-Based Tax Relief

The federal government has abolished the longstanding consolidated relief allowance and personal relief for individuals under Nigeria’s income tax system, replacing them with a rent-based deduction mechanism, as outlined in the newly enacted Tax Act.

The law introduces a rent relief of 20 per cent of annual rent paid by a tenant, capped at N500,000, whichever is lower. This new structure applies only to tenants, with no provision for homeowners.

“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 states.

The consolidated relief under the old regime included N200,000 or one per cent of gross income (whichever was higher), plus 20 per cent personal relief benefits now been removed.

Tax expert John Nwokolo noted that the change is designed to favour low-income earners. “The consolidated relief allowance will no longer be available for individuals in the new tax act,” he said.
“In the case of which is better between the new PAYE tax and the old, that is dicey because… 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.”

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More so, the law appears designed to favour low-income earners and renters, aligning with social equity goals of Nigeria, accurate rent declaration and documentation may pose challenges, especially in informal rental markets, mostly to the locals. The removal of consolidated relief disproportionately affects higher-income individuals and homeowners

Other allowable deductions include contributions to the National Housing Fund (NHF), National Health Insurance Scheme (NHIS), pension schemes, life insurance premiums, deferred annuities, and interest on loans for an owner-occupied home. The first N800,000 of income is now tax-free under Section 4 of the new law.