Whether you’re managing inherited property, receiving income through a family trust, or earning dividends from a family-controlled company, understanding your tax obligations protects both your finances and your family’s reputation. Here’s what the Tax Act 2025 says about family wealth and inheritance.
The Family Income Myth
For generations, Nigerian households have operated under the assumption that “family income” exists as a distinct category or a kind of informal economic immunity zone. The new Tax Act dismantles that myth. In other words, there is no such thing as ‘family income’ under Nigerian tax law. Income is taxable to the person or entity that earns it, regardless of marital status, kinship, or internal family arrangements.
Consider the Adebayo family. Mr. Adebayo owns several rental properties, while his wife operates a profitable boutique. The family may share finances, but the tax law doesn’t care about shared bank accounts, instead it cares about ownership and control. Under Section 121(1), Mr. Adebayo must declare his rental income and Mrs. Adebayo must likewise report her business profits separately. Joint declarations or informal pooling of income may trigger audits or penalties for misreporting.
This principle extends to financial gifts. If a parent “gifts” money to an adult child that is, in fact, disguised payment for work or services, the tax authority may recharacterize it as taxable income. Section 123(3) of the NTAA explicitly empowers tax officers to “look through artificial or disguised transactions” to determine the real nature of income.
Inheritance and the Absence of Estate Tax
In one of the more favourable aspects of Nigerian tax law, inheritance itself remains tax-neutral. Nigeria, unlike the UK or US, does not impose inheritance tax or estate duty at the federal level. Thus, receiving property, land, or money from a deceased relative does not in itself create a tax liability. Section 145 of the Nigeria Tax Act, 2025, confirms this by stating that “no charge to tax shall arise solely by reason of the devolution of an estate upon heirs or successors.”
However, the neutrality ends once those inherited assets begin to generate income or are sold. Rental income from inherited property is fully taxable under Section 33(1) of the Act, which includes “rents, dividends, royalties, and profits from trade or business” within taxable income. Similarly, the sale of inherited property may trigger capital gains tax on the increase in value since inheritance.
For instance, if the Okafor family inherits their grandfather’s house valued at ₦50 million and later sells it for ₦60 million, the ₦10 million gain is taxable under Section 162(2) on capital gains. Thus, prudent heirs are therefore advised to obtain a professional valuation at the date of inheritance, as this becomes the reference point for calculating future taxable gains.
Family Trusts and Their Responsibilities
Trusts have become a favoured vehicle among wealthy Nigerian families seeking to protect assets and manage intergenerational wealth. Yet, few trustees understand that under Nigerian law, a trust is a separate taxable entity. The 2025 Act and the NTAA make this explicit. Section 174(1) states that “a trustee or representative person shall be assessable and chargeable to tax in like manner and to the same extent as if the income were that of the trustee personally.”
This means the trust must:
- Register for tax and obtain its own Tax Identification Number (TIN),
- File annual tax returns independently of the settlor or beneficiaries, and
- Pay tax on any income earned before distributions.
Where the trust distributes income to beneficiaries, those beneficiaries must also declare their share as personal income, preventing double non-taxation. A trustee who fails to meet these obligations risks personal liability under Section 176(4). Common errors among family trustees include mixing personal and trust funds, failing to file annual returns, or ignoring the tax obligations of beneficiaries. The law now treats such lapses as breaches of fiduciary duty with fiscal consequences.
Family Companies and the Deemed Distribution Rule
Family-controlled companies are also under sharper scrutiny. The Act codifies the long-discussed “Deemed Distribution Rule” under Section 184(2) and empowered the FIRS to treat undistributed company profits as though they were distributed dividends if it appears that the company is hoarding earnings merely to defer tax.
This rule aims to curb the practice of using corporate accounts to fund family lifestyles like paying for personal vehicles, overseas tuition, or housing under the guise of “business expenses.” Such benefits are now classifiable as benefits-in-kind, and are now taxable to the recipient.
Family companies remain subject to the normal corporate income tax (currently 30% for large firms, 20% for medium-sized firms under ₦100 million turnover) and shareholders must pay 10% withholding tax on dividends received.
Joint Ownership and Family Partnerships
Joint ownership of income-generating assets, such as rental properties or farms, is common in extended Nigerian families. The 2025 Act preserves the principle of proportionate liability, meaning that each co-owner is taxed on their share of income but according to ownership percentage.
Under Section 198(1), “persons jointly entitled to income shall be assessed separately in respect of their respective beneficial interests.” Thus, if you and your spouse co-own a property in a 60-40 split, you report 60% and 40% of the income respectively.
The same logic applies to family partnerships. Each partner reports their share of profits based on the partnership agreement. However, you cannot deduct personal expenses, nor can you disguise them as business costs. Thus, to safeguard against disputes, it is advised that joint owners should maintain written agreements and ensure all income is properly attributed to its legal source. As the Act emphasizes, documentation is the backbone of compliance.
How Taxpal Can Help Your Family
Managing family finances while maintaining tax compliance can be complex, especially when dealing with multiple family members, entities and income sources. Taxpal provides comprehensive support for family tax planning and compliance. Taxpal’s services include family tax planning strategies, inheritance and estate tax guidance, family business compliance support, trust and estate administration, multi-generational wealth planning, and audit defence and representation.
Whether you’re dealing with inheritance issues, managing a family business, or planning for the next generation, Taxpal can help you navigate the complexities while minimizing your tax obligations and maintaining compliance. Visit their website to explore their consultation options and portal access.
