Different options for transferring a home
ALTHOUGH the SA Revenue Service’s decision to facilitate the transfer of residential property to individuals from close corporations, companies and trusts by cancelling transfer duty on such deals has been enthusiastically taken up by many South Africans, the alternative vehicles through which a home can still be bought have merit in specific situations, says Lanice Steward, MD of Anne Porter Knight Frank.
“Trusts are still suitable holding vehicles for property where the estate is large or requires protection from hasty or irresponsible action by one or more of the potential beneficiaries. Holding the property in a trust also gives trustees the chance to peg the value of the property, which can have benefits in estate planning,” says Steward.
“The disadvantage of this type of holding vehicle, however, is that the transfer duty (at 10 percent) will be higher than that of the individual (8 percent). Capital gains tax will also be payable at 50 percent of the capital gain. The income tax rate for a trust is 40 percent, which means it will pay 20 percent of the capital gain as opposed to 14 percent if it is a company or cc.”
Buying property through a company or a close corporation, says Steward, used to have the great benefit that tax was paid on transfer of the shares, not on the property. This brought about a significant saving but this tax ruling was changed and the transfer duty is now the same as for an individual.
However, if a company is registered for VAT and the property is bought for development purposes, the owners can claim back the VAT paid.
The big disadvantage of a company as a holding vehicle, says Steward, is that its books have to be audited by a chartered accountant each year – even when there has been no business during that year – and this can be very expensive. This has been a major reason for people taking advantage of SARS’s window of opportunity to convert to individual ownership.
Another vehicle now frequently used by property investors and young couples or other new income earners anxious to get a foothold in property is partnership buying.
Here, two or more parties agree to buy property and, if they are wise, employ a lawyer to draw up a clearly worded agreement which
‘People are taking advantage of SARS’s window of opportunity to convert to individual ownership’
establishes how they will determine the value if any of the partners wishes to realise the asset.
When there is a disagreement on the value, says Steward, it can help to ask three estate agents to value the property then to take an average price. Alternatively, it may wise to employ a sworn valuer – but here again there is no guarantee that the other partners will accept the valuation.
“Before buying, think carefully about which vehicle would best suit your requirements,” advises Steward.