 Although
the South African Revenue Services’ decision to facilitate the transfer
of residential property to individuals from close corporations, companies
and trusts by cancelling transfer duty on such deals has been enthusiastically
taken up by many South Africans, the alternative vehicles through which
a home can still be bought have merit in specific situations, says Lanice
Steward, MD of Anne Porter Knight Frank, the Southern Suburbs/Atlantic Seaboard
estate agency.
“Trusts as holding vehicles for property,” says Steward, “are
still eminently suitable where the estate is large and/or requires protection
from hasty or irresponsible action by one or more of the potential beneficiaries.
Holding the property in a trust also gives the trustees the chance to
peg the value of the property which can have benefits in estate planning.
“The disadvantage of this type of holding vehicle, however, is that
the transfer duty (at 10%) will be higher than that of the individual
(8%). Capital gains tax will also be payable at 50% of the capital gain.
The income tax rate for a trust is 40% which means they will pay 20% of
the capital again as opposed to 14% if it is a company or cc.”
Purchasing through a company or a close corporation, says Steward, used
to have the great benefit that tax was paid on transfer of the shares
not on the property. This brought about a significant saving but this
tax ruling was changed and the transfer duty is now the same as for an
individual.
However, if the company is VAT registered and the property is bought
for development purposes, the owners can claim back the VAT payment.
The big disadvantage of a company as a holding vehicle, says Steward,
is that its books have to be professionally audited by a qualified chartered
accountant each year - even when there has been no business during that
year - and this can be very expensive. This has been a chief reason for
people taking advantage of SARS’ window of opportunity to convert
to individual ownership.
Another vehicle now frequently used by property investors and young couples
or other new income earners anxious to get a foothold in property is Partnership
Buying. Here two or more parties agree to buy property and, if they are
wise, employ a lawyer to draw up a clearly worded agreement which establishes
how they will determine the value should one of the partners wish to realise
the asset.
When there is a disagreement on the value, says Steward, it can help
to ask three estate agents to value the property and then to take an average
price. Alternatively, it may wise to employ a sworn valuator – but
here again there is no guarantee that the other partners will accept the
valuation. Before buying think wisely about which vehicle would best suite
your requirements.
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Newsletter:
3 February 2012 to 10 February 2012 - Krugersdorp, Gauteng, South Africa
