The federal government has overhauled Nigeria’s personal income tax structure by eliminating the consolidated and personal relief allowances and replacing them with a new rent-based deduction capped at N500,000.

This reform is contained in the newly enacted Tax Act, which redefines how taxable income is calculated for individuals.

What changed from old Nigerian tax law?

According to the Act, taxable income now comprises profits from business, employment, investments, and capital gains, with total income computed after all approved deductions are removed.

Previously, individuals received a consolidated relief allowance of N200,000 or 1% of gross income (whichever was higher) plus 20% personal relief on gross income. These reliefs often helped reduce overall tax burdens, particularly for middle-income earners.

Now, taxpayers can claim a rent relief of 20% of their annual rent, subject to a maximum deduction of N500,000, but only if the actual rent paid is declared accurately.

Notably, this benefit is exclusive to tenants - homeowners are not eligible for any form of housing-related tax relief under the new rule.

Low-income earners stand to benefit more

Tax consultant John Nwokolo explained that the new system is designed to be more favourable to low and middle-income earners.

Those earning below N25 million per annum will likely experience lower tax burdens, while high-income earners will pay more under the revised rules.

For instance, an individual earning N6 million annually and paying N1 million rent will now enjoy a N200,000 tax deduction, resulting in a taxable income of N5.8 million.

This person would pay N834,000 in taxes - slightly lower than the N896,000 they would have paid under the old regime.

How the new tax law cap works The rent deduction is calculated as 20% of the rent amount, up to N500,000. That means:

If your rent is N1.5 million, you'll get a N300,000 deduction.
If your rent is N3 million, your relief is capped at N500,000, even though 20% of that amount is N600,000.

This cap ensures that high-income earners do not benefit disproportionately from the new rent-based deduction.

Additional deductions still apply under new law

According to a report by TheCable, despite the removal of consolidated and personal reliefs, other deductions remain valid. These include:

Pension contributions under the Pension Reform Act
National Housing Fund (NHF) payments
Life insurance premiums
National Health Insurance Scheme (NHIS) contributions
Deferred annuities
Interest on loans for developing owner-occupied residences

Also, the first N800,000 of an individual’s annual income is now tax-free, providing added relief to the lowest earners.

Nigeria's new tax law aimed at fairness

The new law signals a shift towards a more targeted tax system aimed at ensuring fiscal equity.

However, critics warn it could reduce disposable income for some middle-class earners while doing little for property owners.

Nonetheless, tenants in lower-income brackets may see slightly higher take-home pay thanks to this modest but focused reform.

New items exempted from new VAT law

Legit.ng earlier reported that President Bola Tinubu had signed a sweeping tax reform into law, exempting several items from the 7.5% value-added tax (VAT).

The Nigeria Tax Act, part of four major fiscal bills signed on June 26, 2025, will reduce the cost burden on citizens and stimulate growth in strategic sectors.

The law is expected to take effect on January 1, 2026, and will be governed by the new Nigeria Revenue Service, replacing the Federal Inland Revenue Service.