The National Housing Fund (NHF) deduction is 2.5% of an employee's basic salary, remitted monthly to the Federal Mortgage Bank of Nigeria (FMBN). Since the NHF Act of 2018, contributing is voluntary for private-sector employees, it's only mandatory for federal public-sector workers. Employees who opt in get access to FMBN's low-interest housing loans, and the contribution is tax-deductible.
If you run payroll for a small business, that "voluntary" word matters a lot, it changes NHF from a compliance obligation into an employee benefit you offer. Here's the full picture.
What is the NHF?
The National Housing Fund is a federal savings scheme designed to help Nigerians finance home ownership. Workers contribute a slice of salary; the pool funds mortgages at concessionary rates through FMBN. Think of it as a housing-focused savings scheme with a mortgage attached, not a tax.
Key facts at a glance:
| Item | Detail |
|---|---|
| Rate | 2.5% of basic salary (not gross) |
| Who pays | The employee, no employer contribution |
| Private sector | Voluntary (since the NHF Act 2018) |
| Federal public sector | Mandatory |
| Remitted to | Federal Mortgage Bank of Nigeria (FMBN) |
| Tax treatment | Contributions are tax-deductible |
Who pays, and who doesn't have to
Federal public-sector employees: contribution is mandatory.
Private-sector employees: contribution is voluntary. Your employer should not deduct NHF from your salary unless you've chosen to participate. If you opt in, the employer deducts 2.5% of your basic salary and remits it to FMBN on your behalf.
Self-employed people: can also contribute voluntarily, dealing with FMBN directly.
This is a common payroll error worth flagging: plenty of templates and older guides treat NHF as compulsory for everyone. That reflects the pre-2018 law. If you're deducting NHF from private-sector staff who never opted in, you're docking their pay without a legal basis, fix it and let staff choose.
How the deduction is calculated
NHF is charged on basic salary only, not gross pay. Allowances (housing, transport, and so on) are excluded.
Worked example: Ngozi's package is ₦250,000 a month, structured as ₦150,000 basic, ₦60,000 housing and ₦40,000 transport.
- NHF = 2.5% × ₦150,000 = ₦3,750 a month (₦45,000 a year)
Note the contrast with pension, which is calculated on basic plus housing and transport, the two deductions use different bases. See pension contributions in Nigeria for that one, and the statutory deductions pillar for how everything fits together on a payslip.
The benefits: why an employee might opt in
1. FMBN mortgage access. Contributors become eligible for NHF mortgage loans through FMBN, historically at single-digit interest rates with long repayment periods, far below commercial mortgage terms in Nigeria. FMBN also offers products like home-renovation loans to contributors. (Loan caps, rates and tenors are set by FMBN and change over time, check FMBN's current terms before promising figures to staff.) Eligibility generally requires a minimum period of consistent contributions.
2. Tax relief. NHF contributions are deducted from income before Pay As You Earn (PAYE) is calculated. Ngozi's ₦45,000 annual contribution reduces her chargeable income by ₦45,000, a real saving at her top tax rate. More on how reliefs stack in tax reliefs in Nigeria.
3. Refund at exit. Contributors who reach retirement age without taking a loan can apply to FMBN for a refund of their contributions with interest.
The honest trade-off: 2.5% of basic is money out of take-home pay every month, the refund process requires paperwork, and the mortgage benefit only matters if you'll actually use it. That's exactly why the law makes it a choice for private-sector workers.
What employers need to do
- Ask, don't assume. During onboarding, let each employee choose whether to contribute. Keep their election in writing.
- Deduct correctly. 2.5% of basic salary only, for participating staff only.
- Register and remit to FMBN. Employers with participating staff register with FMBN and remit the deductions monthly, with a schedule showing each contributor.
- Reflect it on the payslip. Employees should see the NHF line and be able to reconcile it against their FMBN records.
- Apply the tax relief. Reduce the employee's chargeable income by their NHF contribution before calculating PAYE, the method is in how to calculate PAYE in Nigeria.
Kua handles the calculation side of this: mark an employee as an NHF contributor and every pay run deducts 2.5% of basic, applies the tax relief, and shows the amount due to FMBN. You make the actual remittance to FMBN, Kua shows you the number and keeps the records tidy.
FAQ
Is NHF compulsory in Nigeria? For federal public-sector employees, yes. For private-sector employees it has been voluntary since the NHF Act 2018, you contribute only if you opt in.
How much is the NHF deduction? 2.5% of basic salary. Someone with ₦100,000 basic pay contributes ₦2,500 a month.
Is NHF calculated on gross salary? No, on basic salary only. Allowances are excluded, which is why NHF is usually a small line on the payslip.
What do I get for contributing? Eligibility for FMBN's concessionary mortgage and renovation loans, a tax deduction on your contributions, and a refund with interest at retirement if you never take a loan.
Can I stop contributing? Private-sector employees who opted in can ask their employer to stop the deduction, since participation is voluntary. Contributions already made stay in the fund until you claim a refund at the qualifying age or use them toward a loan.
Sorting out NHF, pension and PAYE at once? See how Kua runs payroll free, every statutory deduction calculated per employee, every pay run.