When transferring South African property, it is important to be aware of a Tax called Transfer Duty. The concept “transferred” does not necessarily mean that the property is being sold. Also sometimes, a renunciation of an interest (such as a servitude) may result in the enhancement of a property value and Transfer Duty may then actually be payable on the portion of the value that reflects the enhancement.
Generally, only when the selling price or value of the property is in excess of a Government mandated threshold value, is Transfer Duty payable at the applicable rate.
Payment of Transfer Duty is exempted when, for example; Government is the Buyer, certain registered charities buy property for one of their registered charitable activities, joint owners of a property are allocated parts of that property upon it being formally partitioned, divorced spouses are awarded the former matrimonial home, heirs take ownership of a property by testate or intestate succession, certain transfers of property take place in the course of administering Trusts where required by a Will or other written instruments or a registered spouse or registered civil partner becomes entitled to a share in a property due to the marriage or registered partnership to the Owner of the property being in community of property. (South African law does make provision for the exclusion of community of property and should this be your preference, you should consult your Lawyer, preferably before taking transfer of a property. There are also circumstances where it can be excluded in your Will and you should also discuss this with a Lawyer).
These are the primary exemptions. There are a few other exemptions and it is prudent to consult a Lawyer to determine if there is an exemption to being liable to pay transfer duty. You should also consult a Lawyer to enquire how much transfer duty is payable, if it is payable.
The Transfer Duty Act also states that no duty is payable if Value Added Tax (VAT) is payable.
VAT is usually payable by a VAT vendor (Some persons are required to register as VAT Vendors, others voluntarily register as VAT Vendors) and is generally levied on a transaction that is in the course or the furtherance of any enterprise carried on by that person.
In terms of South African law, transactions that are normally subject to VAT may be exempt from any obligation to pay VAT or such a transaction may be subject to 0% VAT instead of the normal rate. A common type of transaction where VAT is rated at 0% is where both Seller and Buyer are registered VAT vendors and the property is being sold as a going concern.
The VAT Act identifies circumstances where the transaction is either VAT exempt or is subject to VAT of 0%.
In summary, either Transfer Duty or VAT is payable when disposing or acquiring property in South Africa. This is apart from any other taxes that may be payable such as Capital Gains Tax.
The article written above is intended to be a summary. It is vital to obtain proper legal advice regarding your particular circumstances. Please speak to your Lawyer.
Ismail Ayob and Partners also practice in the fields of Property Law and Tax Law and can be of assistance in queries you may have. Tel: 011 727 5800 Email: advice@iap.co.za