Dif­fer­ent op­tions for trans­fer­ring a home

Weekend Argus (Saturday Edition) - - PROPERTY -

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.

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