Investing in Property

Investing in Property

SHARE

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.

What you need to know if you are buying property on auction.

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.
Amos Khumalo
Amos Khumalo is the co-founder and senior director of Amos Khumalo Incorporated. He is an attorney, notary, conveyancer and specialist Intellectual Property Practitioner, and was the first black person in the country to qualify as an Intellectual Property Practitioner under the auspices of the SA Institute of Intellectual Property Law. Having been admitted as an attorney in 1997, Amos has an excess of 15 years experience in the legal field. He also opened the first black-owned Intellectual Property Law practice in the country in 2001. For more information visit www.akinc.co.za or email amos.khumalo@akinc.co.za.