Are you planning to sell your property in South Africa?
Before you do, it’s essential to get clued up on the maze of property taxes that could potentially catch you off guard.
From transfer duty to capital gains tax, there’s a confusing array of taxes lurking in the shadows, waiting to pounce on unsuspecting sellers.
But fear not, because in this article, we’re here to help you demystify the world of property taxes.
We’ll give you the lowdown on what you need to know to successfully navigate these taxes and ensure that you don’t end up paying more than you need to.
So, buckle up and get ready to explore the exciting and perplexing world of property taxes in South Africa.
Withholding tax
Withholding tax is in essence a provision for Capital Gains Tax (CGT) paid to or for the benefit of a foreign person resident outside South Africa, and serves as an advance payment towards the Foreign person’s final Income Tax liability.
The following percentages of the Gross Selling price in excess of R 2, 000, 000-00 will determine the amount of the required provision:
- 7,5% where the Seller is a natural person;
- 10% where the seller is a Company; and.
- 15% where the seller is a Trust.
The foreign person is liable for the Tax, but the person making the payment must withhold it, typically the Attorney appointed to attend to the Transfer of the disposed Property. This tax is then paid to SARS.
Transfer Duty
Transfer duty is a tax imposed by the South African government on the transfer of property ownership. If you buy your property from a registered VAT vendor / seller, you will only need to pay VAT instead of transfer duty. The VAT is included in the sale price and is not an additional fee.
Transfer duty is payable by the person acquiring the Property and is typically requested by the Attorney appointed to attend to the Transfer of the Property. Part of the documents required for the successful Transfer of the Property at the Deeds Office is a Transfer Duty receipt from SARS.
The transfer duty is calculated based on the property’s value and is payable by the buyer. The transfer duty rates for properties purchased on or after 1 March 2023 are as follows:
| Value of the property (R) | Rate |
|---|---|
| R1 to R1,100,000 | 0% |
| R1,100,001 – R1,512,500 | 3% of the value above R1,100,000 |
| R1,512,501 – R2,117,500 | R12,375 + 6% of the value above R1,512,500 |
| R2,117,501 – R2,722,500 | R48,675 + 8% of the value above R2,117,500 |
| R2,722,501 – R12,100,000 | R97,075 + 11% of the value above R2,722,500 |
| R12,100,001 and above | R1,128,600 + 13% of the value exceeding R12,100,000 |
Tax on Rental income
If you are planning to acquire a Property in order to rent it out for Income generation, be aware that if you receive income from a Rental Property, you should declare this on your Income Tax return.
Though you will be taxed on this income, be sure to declare your expenses because certain ones – like agent fees, some insurance, and advertising – can be deducted.
Donations Tax
Donations Tax is a Property Tax payable on the value of any Property disposed of as a Donation, and is payable by the Person donating the Property.
This is set at 20% of the Property value up to R30 million, and 25% on Properties valued at more.
The Tax is payable by the donor, and it must be paid by the end of the month following the month in which the Donation was made.
There are plenty of exemptions, including if the Property recipient is a Spouse, a segment of the Government, or a Public Benefit organization.
A Donation is also exempt if the total yearly value of Donations does not exceed R100,000 for individuals (R10,000 for Businesses).
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is not a separate Tax but forms part of Income Tax. A Capital Gain arises when you dispose of an asset (such as a Property) on or after 1 October 2001 for proceeds that exceed its base cost.
Thus, any profit when selling a Property is subject to similar rates as South African Income Tax. Capital gains are taxed at a lower effective Tax rate than ordinary income.
CGT applies to Individuals, Trusts and Companies.
Capital Gains Tax for Company:
The inclusion rate (80 % if it’s a Company or Trust selling the Property) will be included in the Income Tax calculation for the Company / Trust in the applicable year. The more the Company / Trust declares as an Income, the higher the marginal tax rate applied.
A resident, as defined in the Income Tax Act, 1962, is liable for CGT on assets located both in and outside South Africa.
A non-resident is only liable to CGT on Immovable Property in South Africa (see Withholding Tax above)
- The Capital Gains Tax for an individual will equal the calculated Capital Gain x the 40% inclusion rate x the Individual’s applicable marginal tax rate (which increases according to income).
- Capital Gains on a Primary Residence (the residence in which the home seller lives) is excluded up to a rate of R 2, 000, 000-00.
- Capital Gains Tax on a second Property in South Africa qualifies for an exclusion rate of R 40, 000-00.
Inheritance tax in South Africa
Estate Duty is the name for Inheritance Tax, which is a Property tax payable on all Estates with a net worth in excess of R 3, 500, 000-00.
The tax rate for Estate Duty is 20% of Properties worth up to R30 million and is 25% of Properties worth more than this.
The Executor of the Deceased Estate will be accountable for declaring such when winding up an Estate.
Value Added Tax (VAT)
Value-added tax (VAT) is applicable to certain types of real estate transactions.
VAT will be payable on the disposal of a Property that is owned by a Company / Business that is VAT registered.
VAT is currently payable at a rate of 15%.
Navigating the complex world of property taxes in South Africa can seem like a daunting task, with its labyrinthine rules and regulations.
However, armed with the right knowledge and guidance, you can successfully navigate this intricate landscape.
Understanding the different types of taxes that apply to property sales is crucial, as it allows you to plan and strategize your sale in a way that minimizes your tax bill and maximizes your profits. Whether you’re a seasoned investor or a first-time seller, taking the time to learn about property taxes can pay off in the long run.
By gaining a comprehensive understanding of the various tax implications of property sales, you can make informed decisions and achieve your financial goals.
So, if you’re considering selling your property in South Africa, make sure to equip yourself with the necessary information and resources to ensure your success.
