When residential land, or an interest therein is sold or transferred, either VAT or transfer duty is payable on the transaction. The issue of what “tax” is payable when a “property transaction” takes place, has become quite a complicated matter. I am restricting this discussion to a brief look at the payment of the transfer duty or VAT which is payable in respect of residential property transactions.
Most people are familiar with the term ” transfer duty”. The payment of transfer duty is governed by the Transfer Duty Act. Simply stated, it is the tax which is payable to the government by the purchaser when the purchaser acquires land or an interest in land.
The majority of residential properties are registered in the name of natural persons, who are not VAT vendors. When such properties are purchased, transfer duty is payable by the purchaser. The amount of transfer duty payable is based on the purchase price and is calculated as a percentage thereof. The amount of transfer duty payable is based on the purchase price.
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Before the amendments to the Transfer Duty Act on 13 December 2002, it was possible to acquire property which was owned by a company or a close corporation (and arguably a trust) without paying transfer duty. If property was registered in the name of a company, close corporation or trust, the person who wished to purchase the property, could, instead of transferring the property into his or her name, “buy” the company, close corporation or trust. If this was done, no transfer duty was payable in terms of the Transfer Duty Act.
However, amendments to the Transfer Duty Act have closed this “loophole” and generally speaking transfer duty is now payable whenever a person acquires immovable property or an interest therein irrespective of whether the property is actually transferred into their names, or whether they acquire the property through “buying” the company, close corporation or trust or shares in a shareblock scheme.
Transfer duty is payable on all the abovementioned “property transactions” unless the seller is a registered VAT vendor, in which case VAT is payable. VAT is payable by the seller unless the contract specifically states that the purchaser is liable for payment of the VAT. If VAT is payable, no transfer duty is payable. In other words, property transactions can never be subject to payment of VAT and transfer duty.
Although transfer duty is normally payable in respect of the purchase of a residential property one should never just assume that this is the case. Sellers, buyers and agents would be well advised to investigate and familiarise themselves with all the “tax” implications of each transaction relating to the sale and purchase of immovable property before the contract is signed, and determine whether transfer duty or Vat is payable.
(Disclaimer: This article is for information purposes only and do not constitute legal or other professional advice)
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