Transfer of a property: Is VAT or transfer duty payable?
A purchaser is responsible for payment of transfer cost when acquiring an immovable property, but it should further be established if the transaction is subject to the payment of VAT or transfer duty to SARS.
When an immovable property is transferred, either VAT or transfer duty is payable. To determine whether VAT or transfer duty is payable one should look at the status of the seller and the type of transaction.
If the seller is registered for VAT (Vendor) and he sells the property in the course of his business, VAT will be payable to SARS. A vendor is a person who runs a business and whose total taxable earnings per year exceed R1 000 000. He will then have to be registered for VAT. A further stipulation is that the property that is being sold must be related to his business from which he derives an income.
The Offer to Purchase should stipulate whether the purchase price includes or excludes VAT. If the Offer to Purchase makes no mention of the payment of VAT and the seller is a VAT vendor, it is then deemed that VAT is included and the seller will have to pay 14% of the purchase price to SARS. It is the seller's responsibility to pay the VAT to SARS, except if the contract stipulates otherwise.
When a seller is not registered for VAT, but the purchaser is a registered VAT vendor, the purchaser will still pay transfer duty but can claim the transfer duty back from SARS after registration of the property.
When the seller is not a registered VAT vendor it is almost certain that transfer duty will be payable on the transaction. A purchaser is responsible for payment of the transfer duty. Transfer duty is currently payable on the following scale:
1. The first R750 000 of the value of the property is exempted from transfer duty.
2. Thereafter transfer duty is levied at 3% of the value of the property between R750 000 and R1 250 000.
3. Where the value of the property is from R1 250 001 up to R1 750 000, transfer duty will be R15 000 plus 6% on the value of the property above R1 250 000.
4. If the value of the property falls between R1 750 001 and R2 250 000, transfer duty will be R45 000 plus 8% of the value of the property above R1750 000.
5. On a property with a value of R2 250 001 and above transfer duty is R85 000 plus 11% on the value of the property above R2 250 000.
Transfer duty payable by an individual or a legal entity (trust, company or close corporation) is currently charged at the same rate.
Transfer duty is levied on the reasonable value of the property, which will normally be the purchase price, but should the market value be higher than the purchase price, transfer duty will be payable on the highest amount. Transfer duty is payable within six months from the date that the Offer to Purchase was signed.
In instances where a party obtains a property as an inheritance or as the beneficiary of a divorce settlement, the transaction will be exempted from payment of transfer duty.
Where shares in a company or a member's interest in a close corporation or rights in a trust are transferred, the transaction will be subject to payment of transfer duty if the legal entity is the owner of a residential property.
This means that VAT will be payable on the transaction but at a zero rate. If both the seller and the purchaser are registered for VAT and the property is sold as a going concern, VAT will be charged at a zero rate, for instance when a farmer sells his farm as well as the cattle and the implements.
Transfer duty, and not VAT, will be payable when a seller who is registered for VAT sells a property that was leased for residential purposes.
It is thus important for a purchaser to establish the status of the seller when buying a property. The seller who is registered for VAT should carefully peruse the purchase price clause in a contract before signing, to establish if VAT is included or excluded.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Author: Legal Department