The tax implications for property buyers and sellers are complicated.
Mike Greeff, chief executive of Greeff Christie’s International Real Estate, gives us the lowdown.
Transfer duties:
As a first-time buyer your biggest expense, second to the cost of your home, is the transfer duty that applies to it. Transfer duty is payable by the buyer on an immovable asset.
The duty payable is proportional to the value of the asset being transferred and is implemented on a sliding scale. As per the 2017 budget, individuals buying property that costs less than R900000 are exempt from paying a transfer duty.
Properties ranging between R900001 and R1.25million attract a 3% duty on the value above R900001. Properties priced between R1 250001 and R1.75m will cost R10500 plus 6% of the value exceeding R1.25m. Properties priced from R1.75m to R2.25m will cost R40500 plus 8% of the value exceeding R1.75m.
Homes priced R2250001 to R10m will pay R80500 plus 11% of the value above R2.25m, while homes priced from R10000001 and above will pay R933000, as well as 13% of the value exceeding R10m. If your intended property is valued at R2.65m it falls into the R80500 plus 11% category. This means you will pay R80500 plus 11% of the value over R2.25m (which in this instance means 11% of R400000.) Therefore, the total transfer duty payable on your future home is R80500 + R44000 = R124500.
Companies that purchase immovable property will have to pay transfer duty at the same rate as individuals.
The good news is no transfer duty is payable by the seller if they are registered for VAT and the property being transferred forms part of the business operations for which the seller is registered.
Capital gains tax:
Buyers are not the only ones subject to taxes during the property transfer process. Sellers are sometimes liable for capital gains tax (CGT) to Sars.
Capital gains tax is, in essence, a tax placed on the profits gained from the resale of assets. There is an exemption allowed to sellers if the property being sold is being used as their primary residence (not a holiday home, rental or investment property.)
The government considers the first R2m profit gained on the sale of a primary home as CGT exempt.
Capital gains tax is based on the income (from all sources) individuals receive during the financial year. In addition to the once-off primary residence exclusion of R2m, individuals also benefit from an annual R40000 capital gains tax exclusion.
Sellers who use their home for business purposes will pay CGT proportionate to the percent of the property being used for business purposes. The property must, by law, be used for more than 50% domestic purposes, failing which, the exclusion falls away completely, and the sale will be taxed according to the business scale.
A sound understanding of transfer duties, as well as CGT laws, could result in significant savings during the sales process.
Always seek professional assistance when buying or selling property as their experience and knowledge could save you money.