There are a number of different ways to purchase property. Here’s a breakdown of each, as well as the transfer duties, tax implications and additional information on each.
Purchasing under your personal name
- Transfer duty implications: Transfer duty is payable depending on the value of the property, at the same rate as when the property is bought in the name of a company, close corporation or a trust.
- Capital gains tax implications (CGT): CGT on the gain in the value of the property when the property is disposed of is payable at a maximum rate of 10% of the gain. However, if the property is a primary residence, CGT is only payable if the gain in the value of the property exceeds R 1,5 million.
- Estate duty implications: Upon death of the owner, the property will form part of the deceased estate of the owner. If the value of the estate of the owner exceeds R 3,5m, estate duty at 20% of the value of the property will be payable.
- Executor’s fees: Because the property will form part of the deceased estate of the owner, executor’s fees at 3.99% of the value of the property will be payable.
- Protection from creditors: There is none. The property can be attached by creditors in the event that the owner faces financial trouble.
Purchasing under a Company / Close Corporation [CC]
- Transfer duty implications: Transfer duty is payable depending on the value of the property, at the same rate as when the property is bought in the name of a natural person / individual or a trust.
- Capital gains tax implications (CGT): CGT on the gain in the value of the property when the property is disposed of is payable at a maximum rate of 14% of the gain. IMPORTANT: if the shares in the company that owns the property are sold, CGT is also payable at the maximum rate of 14% of the gain.
- Estate duty implications: The shares / members interest will fall in the deceased estate of the shareholder / member. Accordingly, estate duty based on 20% of the value of the shares / member’s interest will be payable.
- Executor’s fees: Because the shares / members interest in the company / CC that owns the property will form part of the deceased estate of the owner, executor’s fees at 3.99% of the value of the shares / members interest will be payable.
- Protection from creditors: There is limited protection from creditors because the shares / members interest (and ultimately the property owned by the company or CC) can be attached by the creditors of the shareholder / member should the shareholder / member be sequestrated.
Purchasing under an Ordinary Trust
- Transfer duty implications: Transfer duty is payable depending on the value of the property, at the same rate as when the property is bought in the name of a natural person / individual or a company.
- Capital gains tax implications (CGT): CGT is payable at 20% of the gain in the value of the property in the event that the property is disposed of. IMPORTANT: There is no R1,5 million rebate that applies to primary residences owned by natural persons. In addition, if the property is held in the name of a special trust i.e. Trust set up for the benefit of a disabled person, CGT is at a lower rate of 14%.
- Estate duty implications: No estate duty is payable because the property is owned by the Trust, even if the property is owned by a company / close corporation whose shares / members interest is owned by the Trust, no estate duty is payable in the event of the death of the Trust’s Trustee, Founder or Beneficiary. There is therefore a saving on 20% estate duty that would be payable if the property were registered in the name of a natural person / company or CC.
- Executor’s fees: No executor’s fees are payable because properties owned by Trusts do not fall in the deceased estate of the Trust’s Founder, Trustee or Beneficiary. There is accordingly a saving on the 3.99% executor’s fees that would otherwise be payable if the property were owned by a natural person or a company / close corporation.
- Protection from creditors: There is full protection against creditors, provided that the Trust has not stood surety for any third party and provided any loan accounts owed to a Trustee / Founder have been settled in full.