The federal government has officially ended the old personal income tax system in Nigeria by removing consolidated and personal relief allowances. In their place, a new rent-based deduction has been introduced, capped at ₦500,000.

This reform is part of the newly signed Tax Administration Act 2025, which changes how taxable income is calculated for individuals across the country.

Key Changes in the New Tax Law

1. Taxable income redefined
   Under the new law, taxable income now includes:
   • Business profits
   • Employment income
   • Investment returns
   • Capital gains
2. End of consolidated relief allowance
   Previously, individuals enjoyed a relief of ₦200,000 or 1% of gross income (whichever was higher) plus 20% of gross income. These reliefs often reduced tax burdens for middle-income earners.
3. Introduction of rent relief
   Now, taxpayers can claim 20% of annual rent as tax relief, but not more than ₦500,000.
   • Example: If your rent is ₦1.5m, you’ll get ₦300k relief.
   • If your rent is ₦3m, your relief is capped at ₦500k (instead of ₦600k).

👉 Note: Only tenants qualify. Homeowners do not get housing-related tax relief.

Who Benefits Most?

Tax experts say the reform mainly helps low and middle-income earners.

• If you earn less than ₦25m annually, your tax burden will likely reduce.
• High-income earners will pay more under the new structure.

For instance:

• A person earning ₦6m per year with ₦1m annual rent can now deduct ₦200k.
• Their taxable income becomes ₦5.8m.
• Tax payable is about ₦834k, which is lower than the old ₦896k rate.

Other Approved Deductions

Even though consolidated and personal reliefs are gone, you can still claim deductions on:

• Pension contributions (under the Pension Reform Act)
• National Housing Fund (NHF)
• Life insurance premiums
• National Health Insurance Scheme (NHIS) contributions
• Deferred annuities
• Interest on home-development loans

Also, the first ₦800,000 of your annual income is now tax-free, which further supports low earners.

Why the Change?

The government says this law aims to make the tax system fairer and more transparent. By focusing on actual expenses like rent, the system tries to give real relief to those who need it most.

However, critics argue that:

• Property owners are left out.
• Some middle-class earners may lose more disposable income.

Still, for many tenants, especially low earners, this reform means a little more money left in their pockets.

Frequently Asked Questions (FAQ)

1. What is Nigeria’s new rent-based tax relief?
It allows tenants to deduct 20% of their annual rent, capped at ₦500,000, from their taxable income.

2. Who can claim rent relief?
All tenants – both salary earners and self-employed – as long as they declare their rent correctly.

3. Are homeowners eligible?
No. The benefit is only for tenants. Homeowners do not receive housing-related tax deductions.

4. What other deductions still apply?
You can still claim relief on pensions, NHF, NHIS, life insurance, deferred annuities, and certain housing loans.

5. What happens to the first ₦800,000 of income?
It is tax-free, meaning low-income earners get extra relief.

6. When does the new law take effect?
The new tax law will apply starting January 1, 2026.

7. Why did the government remove consolidated reliefs?
The aim is to simplify the tax system and make it fairer by giving targeted benefits rather than broad allowances.

✅ In summary, Nigeria’s Tax Act 2025 is designed to reduce the tax load on lower earners while ensuring high-income earners contribute more. If you’re a tenant, especially within the middle-income bracket, you may see some real savings in your next tax year.