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Tax Implications in South Africa |
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South Africa has a highly accurate and modern system of property registration.
All properties in South Africa, other than unalienated State Land, are assigned an accurate diagram and title deed.
You've seen the ideal house. You can imagine your children playing in the garden while you relax on the patio. What's the next step?
| | | | | Buying a home in South Africa, whether for the first time or third time, is an undeniably exciting process. It's the single biggest asset many people will ever own. However, the purchasing process can also be rather daunting. Not everyone is familiar with the legal machinations involved, but the question of costs, especially property tax, doesn't have to be a nightmare. In the article below, we give you an easy and comprehensive guide to exactly what's involved once you've decided to take the plunge and say 'I do' to your dream house.
Once a bond (home loan) has been organised, the first step in the process is to submit an 'offer to purchase. form (supplied by the estate agent) to the seller. One you have signed this, indicating your acceptance of the offer, a legally binding contract is created. The estate agent will hand this to a conveyancer (a specialised attorney appointed by the seller to draft the documents and accounts necessary for transfer of the house to take place). The conveyancer will be your contact person in respect to any queries you may have about the legal process, and will update you at regular intervals on the progress of the transfer.
The legal process may take a few months, and you will need to sign a number of legal documents, such as confirmation letters, status affidavits and declaration forms. Amounts that you will also have to pay include a fee to register your new bond, the deposit (if any), the balance of the purchase price, any occupational rent, insurance and refunds for rates (where applicable). Tax is also payable on the sale of a property, and is usually for your account, either in the form of VAT at 14 percent (in which case it would be included in the purchase price in the same manner as any item is that you might buy at a shop), or, more commonly, in the form of a once off tax called 'transfer duty.'
Transfer duty is usually calculated as follows:
TABLE OF TRANSFER COSTS FOR NATURAL PERSONS
Purchase Price of House | Tax Rate | R0 - R500 000 | 0% | R500 000 - R1 000 000 | 5% on the value above R500 000 | R1 000 000 and above | R25 000 and 8% on the value above R1 000 000 |
Should you be buying the house in the name of an entity such as a company, close corporation or trust, you would need to pay a flat rate of 8% on the purchase price.
The conveyancer will send you the tax amount due once they have received a municipal valuation and the estate agent's fair market value estimation (organized by the estate agent), which is necessary in order for the conveyancer to calculate the exact figure owing.
In certain instances, it may be possible to claim transfer duty or VAT (once paid) from the Receiver of Revenue (SARS), such as when buying a property with the intention of working from home, provided you can prove that the house is necessary for you to produce an income.
Should you be divorced or a widow, you can claim transfer duty if you are buying a house previously registered to your spouse. You can also claim VAT if you register as a VAT vendor, even after the property has been purchased.
Transfer duty can be included into your bond application, saving you the necessity of producing cash. Mortgage SA is one such company that offers this service.
The most important part of buying a home in South Africa is to remember that property tax, as with the other fees, must be added on to the purchase price. Once this has been done, you can tailor your search for a home accordingly. Happy house hunting! |
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