Will Investment Proceeds Be Taxed Under the New Tax Law?

BlackCOD Asset Management

— 2 min read
Will Investment Proceeds Be Taxed Under the New Tax Law?

The new tax law, taking effect January 1, 2026, created some panic, especially in October. Our WhatsApp groups got flooded with messages: "Have you heard about the new tax law?" "Should I adjust my portfolio before January?"

We're here to provide you with some clarity. 

The Core Principle Unchanged

You are taxed on income earned, not assets owned. Your ₦50 million portfolio generates no tax liability. The returns it produces - dividends, interest, capital gains - face different treatment by asset class. 

Government Bond: Fully Tax-Exempt

Section 163 (1)(n) exempts income from Federal and State Government bonds from all taxation. No CGT. No VAT. No withholding tax.

Your FGN Bond coupon payments remain 100% tax-free after January 2026. This continues the existing policy rather than introducing new taxes.

For bond investors, nothing changes negatively. Full exemption across the board.

Capital Gains: Progressive Rates Replace Flat Tax

The most significant change: a flat 10% CGT rate is replaced with progressive rates ranging from 0% to 30% based on total income.

  • First ₦800K of annual income is tax-free
  • Small companies (turnover ≤ ₦100M, fixed assets ≤ ₦250M) pay 0% CGT
  • Pension funds remain fully exempt
  • Existing investments get cost basis reset to December 31, 2025 closing prices

Key improvement: You can now deduct realized capital losses to offset gains. The old system taxed gains without allowing loss deductions - a significant upgrade for diversified portfolios.

Dividend and interest Return

  • Dividends: 10% withholding tax as final settlement (7.5% for UK, SA, China residents)
  • Bank interest: Taxable on the interest earned, not the principal
  • Domiciliary account interest: No longer exempt
  • Pension fund dividends: Still fully exempt

Cryptocurrency Clarified

Owning crypto = no tax. Selling at a loss = no tax. Selling at a profit = taxed on the gain.

Staking rewards are considered investment income and are subject to progressive taxation.

Foreign Income Repatraition is Key

Income earned abroad and brought to Nigeria by non-residents is now specifically exempted from Nigerian tax.

Foreign dividends, rent, interest, and royalty repatriated through official CBN channels remain exempt. Using unauthorized routes triggers taxation.

What This Strategy Means

  • Government bonds become more attractive on an after-tax basis
  • Loss harvesting creates new tax-efficient portfolio management opportunities
  • Small company investing gets significant tax incentives
  • Documentation and record-keeping become crucial for deductible expenses
  • Multi-year tax planning replaces reactive annual filing

The Complexity Factor

Progressive taxation interacting with various exemptions, foreign income rules, and controlled foreign company provisions creates complexity that rewards professional guidance.

After-tax returns determine actual wealth accumulation. Tax-efficient portfolio management isn't optional anymore - it's essential to preserving investment gains.

The Bottom line

Social media panic largely stems from misunderstanding. The government isn't introducing sweeping new investment taxes - it's modernizing the framework, closing loopholes, and aligning Nigeria with global tax practices.

Most investors, especially those in lower brackets or investing through pensions, see maintained or improved treatment. Government bond investors face no change. Small investors benefit from higher exemption thresholds.

Higher-income investors face increased obligations but gain benefits like loss deductibility and clearer compliance frameworks.

Key takeaways before January 1, 2026:

Review your portfolio to understand unrealized gains before the cost basis resetDocument all investment costs for the new deductibility provisionsConsider tax-loss harvesting strategies under the new framework.Evaluate asset allocation through a tax efficiency lens.Consult professional advisors on complex provisions.

Conclusion

Yes, going forward, investment proceeds will be taxed under the new tax law in Nigeria. However, the story is nuanced: past gains are protected, new exemptions are introduced, and strategic planning can create meaningful value. For Nigerian investors and corporates looking to optimise returns and minimise tax leakage, contact us today to stand ready as your partner in navigating this evolving landscape.

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