Transfer of a property: Is VAT or transfer duty payable?

A purchaser is responsible for payment of transfer cost when acquiring immovable property, but it should further be established whether the transaction is subject to the payment of VAT or transfer duty.

When immovable property is transferred, either VAT or transfer duty is payable. To determine whether VAT or transfer duty is payable one should look at the status of the seller and the type of transaction.

VAT WILL BE PAYABLE

If the seller is registered for VAT (Vendor) and he sells the property in the course of his business, VAT will be payable to SARS. A vendor is a person who runs a business and whose total taxable earnings per year exceeds R1 000 000, 00. He will then have to be registered for VAT. A further stipulation is that the property that is being sold must be related to his business from which he derives an income.

The Offer to Purchase should stipulate whether the purchase price includes or excludes VAT. If the Offer to Purchase makes no mention of the payment of VAT and the seller is a VAT vendor, it is then deemed that VAT is included and the seller will have to pay 14% of the purchase price to SARS. It is the seller's responsibility to pay the VAT to SARS, except if the contract stipulates otherwise.

When a seller is not registered for VAT, but the purchaser is a registered VAT vendor, the purchaser will still pay transfer duty but can claim the transfer duty back from SARS after registration of the property.

TRANSFER DUTY WILL BE PAYABLE

When the seller is not a registered VAT vendor it is almost certain that transfer duty will be payable on the transaction. A purchaser is responsible for payment of the transfer duty. Transfer duty is currently payable on the following scale:
 

VALUE OF PROPERTY	RATE
0 - 900 000	0%
900 001 - 1 250 000	+ 3% of the value above R900 000
1 250 001 - 1 750 000	R10 500 + 6% of the value above R 1 250 000
1750 001 - 2 250 000	R40 500 + 8% of the value above R 1 750 000
2 250 001 - 10 000 000	R80 500 +11% of the value above R2 250 000
10 000 001 and above	R933 000 + 13% of the value above R10 000 000

Transfer duty payable by an individual or a legal entity (trust, company or close corporation) is currently charged at the same rate.

Transfer duty is levied on the reasonable value of the property, which will normally be the purchase price, but should the market value be higher than the purchase price, transfer duty will be payable on the highest amount. Transfer duty is payable within six months from the date that the Offer to Purchase was signed.

In instances where a party obtains a property as an inheritance or as the beneficiary of a divorce settlement, the transaction will be exempt from the payment of transfer duty.

Where shares in a company or a member's interest in a close corporation or rights in a trust are transferred, the transaction will be subject to payment of transfer duty if the legal entity is the owner of a residential property.

ZERO-RATED TRANSACTIONS

This means that VAT will be payable on the transaction but at a zero rate. If both the seller and the purchaser are registered for VAT and the property is sold as a going concern, VAT will be charged at a zero rate, for instance when a farmer sells his farm as well as the cattle and the implements.

EXEMPTION

Transfer duty, and not VAT, will be payable when a seller who is registered for VAT sells a property that was leased for residential purposes. It is thus important for a purchaser to establish the status of the seller when buying a property. The seller who is registered for VAT should carefully peruse the purchase price clause in a contract before signing, to establish if VAT is included or excluded.

For any queries please contact our property law division at the details below:
 

Tel: 012 425 3549