SA must follow UK example on transfer taxes
COUNTRIES that genuinely place a high value on individual home ownership almost always ensure that their property transfer tax is low, and if South Africa really wants to revive its housing market, it should review the transfer duty scale, says Tony Clarke, MD of Rawson Properties.
“First world economies are slowly pulling out of recession and the SA economy, although likely to lag six to eight months behind, has turned the corner. Now is the time to get residential property moving – and a reduction in transfer tax would be an excellent way to do it,” says Clarke, “especially as a further drop in interest rates is now gener- ally considered unnecessary.”
Clarke says SA buyers pay no transfer duty on properties priced at R500 000 or less. For properties up to R1 million, the rate is 5 percent and above R1 million the duty payable is R25 000 plus 8 percent of the price.
By contrast, says Clarke, the UK Revenue Services charge what is known as Stamp Duty Land Tax (SDLT) at a significantly lower rate. On any property valued below £125 000 (R1 527 000), British home buyers pay no tax at all. Up to £250 000 they pay only 1 percent tax. Up to £500 000 they pay 3 percent and above £500 000 they pay 4 percent.
Stressing how debilitating SA taxes can be, Clarke said that, on the S A e q u iv a l e n t o f t h e n o - d u t y £125 000, the SA buyer would have to find R65 000 in transfer duty. On a home of £250 000, the British taxpayer would pay only £2 500 (R28 750) in transfer duty but the SA taxpayer would have to find R185 000.
“The latest Absa figures show that the average house in SA today is priced from R850 000 to R950 000. Buyers have to find more than R20 000 in transfer duty, as well as rates and levy clearance fees, deeds office fees and VAT. Bearing in mind that most buyers also have to have a 10 percent deposit (as the banks are sticking to the National Credit Act criteria) it is not at all surprising that buyers are still backing off.”
Clarke also believes SA should adopt the UK practice of taxing on the use to which the property is put and not on the holding entity it is bought through. In SA close corporations, companies and trusts pay about 8 percent of the full price in transfer tax irrespective of the building’s purpose.
If a review of taxes is undertaken, says Clarke, he would suggest that all homes worth up to R1 million pay no transfer duty.
“If the proposed measures are implemented, the shortfall could be made up through other taxes, in part perhaps by higher taxes on imports – which would stimulate local manufacturing,” says Clarke.