The Tax-man’s involvement in a property sale

We all know that transfer duty is payable when purchasing a property, but what is it exactly, who pays it when and how much?

If transfer duty is payable on all property transfers where the purchase price of the property exceeds the current prescribed R900 000, then it is still noted that certain estate agents advertise properties exceeding the above amount with the words, “No transfer duty payable.”

In each and every property transaction there will either be transfer duty payable, or Vat payable, never both. What is important to note is that transfer duty is payable by the purchaser and Vat is payable by the seller. Here is the difference.

Transfer Duty

Transfer duty is a tax levied on the value of any property acquired by any person by way of a transaction or in any other way.

The current formula for calculating transfer duty is as follows:

Value of Property:

*(R) Rate 0 to R900 000 = 0%

*900 001 to 1 250 000 = 3% of the value above R900 000

*1 250 001 to 1 750 000 = R10 500 which is + 6% of the value above R1 250 000

*1 750 001 to 2 250 000 = R40 500 which is + 8% of the value above R1 750 000

*2 250 001 to 10 000 000 = R80 500 which is +11% of the value above R2 250 000

*10 000 000 and above = R933 000 which is +13% of the value above R10 000 000

All transactions where the value of the property is less than R900 000 will be exempt from transfer duty. There are other situations where a property will also be exempted from transfer duty.

These are contained in Section 9 of the Transfer Duty Act, Act 40 of 1949. A few examples are: property passed to an heir either testate or intestate; property acquired by governed municipalities or water service providers; acquisition of property by a spouse either by divorce or as a result of the death of the spouse; and transfer from a partnership into the individual partner’s name.

These are only a few examples. Section 9 of the Transfer Duty Act contains an exhaustive list of exemptions.

What about Vat?

Vat is an indirect tax on the consumption of goods and services in the economy.

The current Vat rate is 14%. To determine whether VAT or transfer duty will be applicable in a property transaction, one has to take a look at the status of the seller.

If the seller is:

(a) a registered Vat vendor

(b) for the purchase of the Act then Vat and not transfer duty is due and payable.

Being a registered Vat vendor speaks for itself. “For the purpose of the Act” means that the ordinary course of the business of the seller has to be of such a nature that it involves the buying and/or selling of properties.

Often when a developer develops a new sectional scheme, he being the seller, and registered as a Vat vendor and also his business being of such nature that it involves the buying or selling of property, he will be liable for Vat at the current rate of 14%.

In our scenario, the seller now has to pay Vat.

Even though the unit’s selling price is R1 200 000, which is more than the R900 000 exemption, Vat will be payable and not transfer duty, because of the status of the seller.

The above is a brief description of transfer duty and Vat implications pertaining to a property transaction.

This article was proudly brought to you by Homes Alberton (or whichever paper the article may appear in) in partnership with SJ Botha Attorneys Inc.

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