Capital Gains Tax can be reduced

Capital Gains Tax is not nearly as “scary” as it is perceived to be but an awareness of the calculation of your capital gains at the time of buying a property should be considered, says Lanice Steward, MD of Anne Porter Knight Frank.

If the property is owned jointly by a husband and wife and, for example, the wife does not work, it could be beneficial to change the ownership shareholding to 70/30 or 80/20 of the property in favour of the non-income earner. 

This would mean that at the time of selling the property, the greater portion of the tax burden will fall in the wife or non-income earner’s ownership and in all likelihood be below the tax threshold, and would mean that there is no Capital Gains Tax payable. 

“Another thing to remember when you buy a home today,” says Steward, “is to remember to keep a record of all the documentation, i.e. the invoices and records of payments, of any improvements done to the property.  There is an important distinction between improvements and maintenance because you cannot deduct maintenance but you can deduct for improvements made.”

The question to ask is “Did I incur the expense to maintain the value of the property?” – in which case you cannot.

“But, if you landscape your garden or refurbish the kitchen that becomes a deductible expense and this can make a substantial difference to the amount of money that you will pay in tax,” said Steward.  “Something that is often forgotten that can be deducted are all professional fees incurred on home improvements and the purchase of the home such as architects’, attorneys’ or interior designers’ fees, to name a few.”

It is becoming increasingly unattractive to put a property in a trust, where you will pay a flat rate of 66,6% on the capital gain as opposed to 33,3% in the case of private ownership.  The taxable rate for a CC or Pty is 40%. 

“It is also worth remembering, for non- residents, where there is a 5% to 10% withholding tax, they can get a tax directive which will cost them R5 200 and they then do not have to wait for the end of the tax year before they can finalise taxes owed,” said Steward. 

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