Rent Relief under NTA 2025: how Nigerian employees cut their PAYE (2026 guide)

When the Nigeria Tax Act 2025 (NTA 2025) took effect on 1 January 2026, it scrapped the old Consolidated Relief Allowance and put a single new deduction in its place: Rent Relief. This guide explains what Rent Relief is, how it is calculated, why your employees only get it if they declare their rent, and exactly how much PAYE it saves — with the arithmetic shown. It's written for Nigerian employers, payroll admins, and employees who want to check their own payslip. For the full PAYE walkthrough, see how to compute PAYE in Nigeria under NTA 2025.

Rent Relief at a glance

Sources: Nigeria Tax Act 2025 (NRS) · Nigeria Revenue Service.

1. What Rent Relief actually is

Under the Finance Act 2020, every taxpayer received the Consolidated Relief Allowance (CRA) — the higher of ₦200,000 or 1% of gross, plus 20% of gross — automatically, whether or not they had any real costs to relieve. NTA 2025 abolished that. In its place it grants relief tied to a real expense most working Nigerians actually carry: rent.

Rent Relief is a deduction from taxable income, not a tax credit and not a cash payment. It lowers the income figure that the PAYE bands are applied to, so the saving is worth the employee's marginal tax rate on the relieved amount — not the full amount itself. This is the single most misunderstood point, so we'll show the arithmetic in section 4.

Rent Relief is a deduction, not a refund. It reduces chargeable income; the cash value is the relief multiplied by your marginal PAYE rate.

2. The formula and the ₦500,000 cap

The relief is:

Rent Relief = min(20% × declared annual rent, ₦500,000)

Two moving parts:

• 20% of declared annual rent — the tentative relief.
• The ₦500,000 cap — the relief can never exceed ₦500,000 in a year, no matter how high the rent.

Worked from a few rent levels:

The cap is reached the moment declared rent hits ₦2,500,000 a year (20% × ₦2,500,000 = ₦500,000). Above that, extra rent buys no extra relief.

3. It only applies if the employee declares rent (NULL vs zero)

This is the operational trap. Rent Relief is not automatic. NTA 2025 gives no default and no fallback formula — the employee must declare their annual rent, typically through a self-service payroll portal, before any relief is applied.

That creates a distinction your payroll system must respect:

• Not declared (NULL) — the employee has never entered a rent figure. Relief is ₦0, but the record is unknown, and staff should be prompted to declare.
• Declared zero (0) — the employee has actively said "I pay no rent" (e.g. lives in employer-provided or family accommodation). Relief is also ₦0, but this is a confirmed answer, not a gap.

Both produce zero relief today, but they are not the same thing for audit and for prompting. A payroll system that silently treats a blank as zero will quietly over-tax every employee who simply never got asked. AnooreHR keeps NULL and 0 as separate states so admins can chase the un-declared without disturbing those who genuinely declared nothing.

4. Worked example — the real naira saving

Take an employee on ₦8,000,000 annual gross, structured 60% basic / 20% housing / 10% transport / 10% other. Pensionable pay (basic + housing + transport) is ₦7,200,000, so pension at 8% is ₦576,000.

Step 1 — income after pension:

₦8,000,000 − ₦576,000 = ₦7,424,000

Step 2 — the employee declares ₦3,000,000 annual rent. Relief = min(20% × ₦3,000,000, ₦500,000) = min(₦600,000, ₦500,000) = ₦500,000 (the cap bites).

Step 3 — chargeable income with relief:

₦7,424,000 − ₦500,000 = ₦6,924,000

Step 4 — PAYE using the NTA 2025 bands (0% on first ₦800k; 15% on next ₦2.2m; 18% on next ₦9m):

Without Rent Relief (chargeable ₦7,424,000):

• First ₦800,000 × 0% = ₦0
• Next ₦2,200,000 × 15% = ₦330,000
• Remaining ₦4,424,000 × 18% = ₦796,320
• PAYE = ₦1,126,320

With Rent Relief (chargeable ₦6,924,000):

• First ₦800,000 × 0% = ₦0
• Next ₦2,200,000 × 15% = ₦330,000
• Remaining ₦3,924,000 × 18% = ₦706,320
• PAYE = ₦1,036,320

Step 5 — the saving:

₦1,126,320 − ₦1,036,320 = ₦90,000 a year ≈ ₦7,500 a month

That is exactly ₦500,000 × 18% — the relief times this employee's marginal rate. An employee whose top slice sits in the 15% band would save ₦75,000; one in the 21% band, ₦105,000. The relief is the same ₦500,000; the cash value tracks the marginal rate.

5. Monthly proration and the December true-up

PAYE is computed on an annual basis and remitted monthly, so Rent Relief is spread across the year — roughly ₦500,000 ÷ 12 ≈ ₦41,667 of relief applied each month for someone at the cap. But rent declarations don't always arrive in January. If an employee declares in, say, April, the months already run were taxed without the relief.

NTA 2025 payroll is reconciled at year end. A well-built system performs a December true-up: it recomputes the full-year PAYE with the correct annual relief and adjusts the final month so the total tax withheld for the year matches the annual computation. The practical rule for employers:

• Apply relief from the month of declaration onward.
• Let the December (or final-period) run reconcile the whole year so no employee is under- or over-relieved on their annual return.

6. Common mistakes

1. Treating relief as automatic. It replaced CRA, which was automatic — but Rent Relief is not. No declaration, no relief.
2. Applying 20% with no cap. The relief is capped at ₦500,000. On ₦4,000,000 rent it is ₦500,000, not ₦800,000.
3. Confusing NULL with declared zero. Silently defaulting a blank to zero over-taxes everyone who was never asked to declare.
4. Back-applying it to 2025. Rent Relief only exists under NTA 2025, for periods from 1 January 2026. Payroll periods up to 31 December 2025 use the Finance Act 2020 CRA instead — never mix the two.
5. Forgetting the December true-up. A mid-year declaration needs a year-end reconciliation, or the employee's annual PAYE won't tie out.
6. Confusing the cash value with the relief. The relief is ₦500,000 of income removed from tax; the money saved is that figure times the marginal rate.

AnooreHR handles Rent Relief the way NTA 2025 intends: employees declare their annual rent through the self-service portal, the min(20%, ₦500,000) formula and cap are applied automatically, NULL and declared-zero stay distinct, and every period is date-routed to the correct tax act so 2025 periods keep CRA while 2026 onward uses Rent Relief — with a December true-up built in. Nothing is hard-coded, so the day the cap changes, your workflow doesn't. Book a demo and bring one real payslip, or sign up free to try it on your own salary structure.

Frequently asked questions

Related: How to compute PAYE in Nigeria under NTA 2025 · NHF is now voluntary — how to opt out in 2026 · See pricing