Tax in South Africa today – Pay less Tax, here’s how
29 Mar 2021
Entities to consider when purchasing property
There are numerous legal structures to look into when you buy property and they are not all equal. They range from personal ownership, family trusts, to that of company ownership and even a close corporation. Those in the possession of such an entity can still purchase a property through the entity.
Let’s take a look at the different entities.
Buying property in your own capacity
Many people purchase a property in their name by default. Individuals purchasing a property like this will pay based on a sliding scale, but it depends on the price of the property in question. Properties under a certain amount do not pay transfer duty. Selling a property as an individual amount to 18% Capital Gains Tax if you make more than R2 million profit. Buying a property in your name does not require any additional steps and is probably the most straightforward.
Buying a property through a trust
Trusts are legal entities created by a trust founder and could be used to purchase a property. Establishing a trust can cost a fair amount of money, but purchasing a property in the name of a trust holds several advantages. Any assets forming part of a trust will not form part of a deceased estate, so there won’t be estate duty payable, or executor’s fees. Because the property won’t have to be transferred, there won’t be a transfer duty or potential capital gains tax. One disadvantage is that trustees will have to run the trust and the assets, so the founder will technically not be in control anymore. Assets in a trust are protected from creditors, as long as the founder was solvent for the first six months of establishing the trust.
Buying a property in the name of a company
A company selling a property will incur a capital gains tax of 22.4%, which is a higher percentage than an individual would pay. Companies can’t die, so an advantage is that there won’t be any estate duty in the case of the death of an individual. There won’t be transfer duty payable if the company is VAT registered. Only VAT is payable in this case. There are always exceptions to cases though, so all details should be considered.
Using your Close Corporation to purchase property
Close Corporations (CC) have effectively been phased out in 2008, but existing ones could continue operating until deregistered. An advantage is that a CC does not have to have audited statements – financials can be prepared by a financial person. CC’s face the same transfer duty, capital gains tax, and tax implications as all other companies when it comes to purchasing properties.
There are however many more factors to consider when purchasing a property. It is important to note that aim of the property as this could influence decisions as to which entity to use. Before making a purchase decision, it is best to seek proper advice from an expert. A lawyer or financial consultant will be able to guide you in making an informed decision.
For more information, send an email to club@shareyourwealth.co.za.
