Politics and property

Next week sees the Honourable Minister of Finance, Mr. Trevor Manuel, deliver his 10th budget speech. If you thought that property and politics had nothing to do with each other, think again. There are myriad connections between national and local legislation that affects property owners. It is the business of government to promulgate laws that enables them to collect monies and use these for the betterment of society. Property ownership is one of the key ways in which the government set about collecting these taxes.

National Legislation
At the national level legislation that affects property owners is in the form of two major taxes. Firstly there is the transfer duty that affects all purchasers of property. The government exacts a tax for every property transaction. The tax rate is 0% for properties under R190 000, 5% for properties up to a value of R320 000 and then 8% of all values above that. The level at which this property tax takes effect has been raised by the government over the past few years.

This isn't a concession to collect less tax but rather a reflection of the enormous escalation in property values over the years and an effort to move the cost of property ownership onto the more affluent property owner while trying to make property more affordable for the purchaser at the lower end of the price scale. The purchaser pays these costs. Over and above these costs there is also the conveyancing costs that are separate to this tax although the purchaser still has to fork out for this.

The second national tax that applies to property ownership indirectly is that of Capital Gains Tax (CGT). When selling a property a CGT event is triggered. Government still allows for the primary residence of an individual to be exempt from this gains tax up to a limit of R1 million. This seems very lenient but with the escalating price of property people will soon find themselves having to fork over a portion of their gains when selling even a modest property. Any property not deemed to be your primary residence and held in your own name will automatically attract CGT. You can check the rates that are applicable in previous articles, but it varies between 10-15%.

A third tax not commonly thought of as a property tax is Estate Duty tax. When you die, which is as inevitable as your having to pay taxes, the value of your property contributes to the overall value of your estate that is taxed. Property is probably going to be a large proportion of this value and will contribute to the estate tax that the government exacts for the privilege of dying. There are exemptions but again the curse of tax creep and inflation will push most middle class South Africans into paying over a substantial chunk to the receiver.

Local Legislation
Another level of taxation is at the local or municipal level. These are your rates and taxes. A portion of this is correctly viewed as a cost for services in the municipal areas but another portion is a tax for the privilege of owning property in a particular municipality. These taxes are worked out on a calculated value of your home. There has been much over the past two years as to the calculation of this value and again the governments approach is to apply a tax to the well off or better off for the benefit of the less well off.

The point of briefly going over some of these taxes is to point out that property ownership is not disconnected from politics as it is politicians that make these laws, exact these taxes and spend your money.

Nothing has even been said about the quality of your local councils services that affect the value of your properties. Slow council approval and corruption at this level will only lead to a devaluation of property within any affected area.

I don't advocate the evasion of paying tax, but consciously paying only as much as is necessary and then also choosing people who will be responsible for the judicious spending of this money is the right of every citizen. Obviously property and politics are inextricably linked and it is your privilege to have your say in a democratic society and try to influence the quality of your life. "People get the government that they deserve. That is the beauty of democracy". What sort of government do you deserve?

Article by: Dave Welmans - www.thepropertygame.co.za