Introduction
On June 26, 2025, President Bola Ahmed Tinubu signed the Nigeria Tax Act 2025 into law, fundamentally overhauling how investment profits are taxed in Nigeria. For mutual fund investors, the changes are significant: what was once a simple 10% flat rate on capital gains now becomes a progressive system ranging from 0% to 30%, effective January 1, 2026.
The reforms aim to harmonize tax treatment across income types, eliminate arbitrage between capital and trading income, and create a more equitable system where high-income earners contribute proportionally more. However, the changes also introduce complexity that every mutual fund investor must understand to remain compliant and optimize their tax position.
Previous System (Until December 31, 2025)
Under the Capital Gains Tax Act (CGTA), all investors paid a flat 10% tax on profits from selling assets including mutual fund units. Whether you earned ₦100,000 or ₦100 million annually, your capital gains tax rate remained constant at 10%.
Example under old rules:
Mutual fund profit of ₦2 million = ₦200,000 tax (10% flat rate)
New System (From January 1, 2026)
The Nigeria Tax Act 2025 replaces the flat rate with progressive taxation tied to your total income:
For Individual Investors:
|
Total Annual Income |
Capital Gains Tax Rate |
|
₦0 to ₦800,000 |
0% |
|
₦800,001 to ₦3,200,000 |
15% |
|
₦3,200,001 to ₦8,000,000 |
18% |
|
₦8,000,001 to ₦20,000,000 |
21% |
|
₦20,000,001 to ₦50,000,000 |
23% |
|
Above ₦50,000,000 |
25% |
For Corporate Investors:
30% flat rate (aligning with Companies Income Tax)
For Small Companies:
0% (companies with turnover ≤ ₦100 million and fixed assets ≤ ₦250 million)
Critical change: Your capital gains are added to your employment income, business profits, and other earnings to determine your applicable tax band.
Same ₦2 million mutual fund profit under new rules:
Money Market Funds
When you redeem units at profit, capital gains tax applies at your progressive rate. While interest income inside money market funds remains tax-free for individuals, gains from NAV appreciation are taxable upon redemption.
Fixed Income Funds
Capital gains from redemption are taxable. Interest distributions may be subject to 10% withholding tax for corporates but typically tax-free for individuals.
Equity Funds
Both capital gains (from redemption) and dividend distributions are taxed. Dividends typically face 10% withholding tax at source, while capital gains use the progressive rate structure (0-25% for individuals).
Dollar Funds
Gains calculated in Naira terms are fully taxable, including profits from currency appreciation when naira weakens against the dollar.
Fund managers are required to withhold capital gains tax when you redeem units. This means:
Exemptions for Mutual Fund Investors
Practical impact: Most retail mutual fund investors investing ₦100,000 to ₦5 million will often fall below these thresholds and pay zero CGT.
Example:
Redeem ₦5 million (₦1 million gain), reinvest ₦4 million in another mutual fund within 12 months. CGT applies only to ₦1 million not reinvested.
This protects past gains from retroactive taxation.
Example:
Bought mutual fund units at ₦10 per unit in 2020. Value on December 31, 2025: ₦30 per unit. Sell in 2027 at ₦40 per unit.
Tax applies only to ₦10 gain (₦40 minus ₦30), not ₦30 (₦40 minus ₦10). The ₦20 appreciation from 2020 to 2025 is tax-free.
Record-Keeping Obligations
Investors must maintain documentation for six years:
Annual Tax Return Declaration
Even if tax was withheld at source, you must:
Penalties for Non-Compliance
Failure to declare capital gains or file returns can result in:
For Retail Investors (Annual Income Below ₦5 Million)
Impact: Generally favorable. Many will fall into 0-15% tax bands, paying less than or similar to the old 10% rate. The ₦150 million/₦10 million exemption threshold protects most small investors entirely.
Recommended actions:
For High-Income Investors (Annual Income Above ₦20 Million)
Impact: Significant tax increase. Capital gains now taxed at 23-25% versus previous 10%, effectively doubling or tripling tax liability.
Recommended actions:
For Corporate Investors
Impact: Triple the previous tax burden (30% versus 10%). Companies may reconsider mutual fund allocations in favor of direct treasury bill holdings or bank placements with different tax treatment.
Recommended actions:
Federal Inland Revenue Service (FIRS)
FIRS is the primary tax authority responsible for:
SEC regulates mutual fund operations including:
Investor complaints: File with SEC if fund managers fail to provide proper tax documentation or withhold incorrectly.
Expected Implementation Guidance
FIRS is expected to issue detailed regulations before January 1, 2026, covering:
Monitor official channels for updates:
Before December 31, 2025:
Document your cost basis: Obtain statements showing purchase price and dates for all holdings
From January 1, 2026:
Track total annual income: Maintain awareness of which tax band you fall into
Request tax withholding certificates: Ensure fund managers provide proper documentation
Plan redemptions strategically: Consider timing relative to income levels and reinvestment relief
File complete tax returns: Declare all capital gains even if tax was withheld
Consult tax professionals: Seek advice for complex situations or high-value portfolios
Ongoing:
Compare mutual fund performance and features on our investment platform.
Frequently Asked Questions
Do I pay capital gains tax on mutual fund dividends?
No. Dividends are subject to 10% withholding tax, which is typically final for individual investors. Capital gains tax applies only when you redeem/sell units at a profit.
What if I switch between mutual funds?
Switching is treated as a redemption (sale) of the first fund and purchase of the second. Capital gains tax applies to any profit realized on the first fund at the time of switching.
Are money market fund gains really taxable?
Yes. While interest income inside money market funds is tax-free for individuals, when you redeem units at a profit (NAV appreciation), that gain is subject to capital gains tax.
How do I calculate my cost basis for funds purchased years ago?
For investments held before December 31, 2025, your cost basis resets to the higher of your original purchase price or the NAV on December 31, 2025. Request this information from your fund manager.
What documentation do I need to keep?
Purchase confirmations, redemption statements, dividend distribution notices, fee receipts, tax withholding certificates, and any reinvestment records. Retain for six years minimum.
Conclusion
It's a good period to invest wisely, and stay up to date with all the regulatory changes that can impact your wealth-building journey. Stay up to date with nairaCompare!
This article provides general information about capital gains tax regulations under the Nigeria Tax Act 2025 and should not be construed as tax, legal, or financial advice. Consult qualified tax professionals or financial advisors for guidance specific to your situation.