Tony Clarke calls for a drop in transfer tax

Countries that genuinely place a high value on individual home ownership almost always ensure that their property transfer tax is low – and if South Africa really wants to revive its housing market and get it back to “normality” they should be looking at reviewing the transfer duty scale.

This is the view of Tony Clarke, MD of Rawson Properties.

“The First World economies are now slowly pulling out of recession and the SA economy, although likely to lag six to eight months behind, has turned the corner. The time is now ripe to get residential property moving – and a reduction in transfer tax would be an excellent way to do it,” said Clarke, “especially as a further drop in interest rates is now generally considered as unnecessary.”

Currently, said Clarke, where the buyer is a naturalised South African, SA Revenue Services charge no transfer duty on properties with a purchase price of R500 000 or less. For properties valued R500 000 to R1 million, the rate is 5% and for properties above R1 million the duty payable is R25 000 plus 8% of the value.

By contrast, says Clarke, the UK Revenue Services charge what is known as Stamp Duty Land Tax (SDLT) at a significantly lower rate. On any property valued below £125 000 (approximately R1,5 million at the current exchange rate) British home buyers pay no tax at all. On properties valued from £125 000 to £250 000 they pay only 1% tax. On properties valued £250 000 to £500 000 they pay 3% and on those above R500 000 they pay 4%.

Stressing how debilitating SA taxes can be, Clarke said that, on the SA equivalent of £125 000 (where the British buyer would pay no duty), the SA buyer would have to find approximately R65 000 in transfer duty. On a home of £250 000 (R3 010 000 in SA money) the British taxpayer would pay only £2 500 (R28 750) in transfer duty but the SA taxpayer would have to find R185 000.

“The latest ABSA figures,” said Clarke, “show that the average house price in SA today is priced from R850 000 to R950 000. Buyers of such houses have to find some R22 000 in transfer duty, as well as rates and levy clearance fees, deeds office fees and VAT on these. Bearing in mind that most buyers also have to have a 10% deposit (as the banks are sticking to the National Credit Act criteria) it is not at all surprising that buyers are still backing off.”

Clarke also feels that SA should adopt the UK practice of taxing on the use to which the property is put and not on the holding entity through which it is being purchased. (Currently in SA close corporation companies and trusts pay on average an 8% of the full purchase price transfer tax irrespective of the purpose for which the building will be used.)

If a review of taxes is undertaken, said Clarke, he would suggest that all homes up to a value of R1 million pay no transfer duty.

If the measures he has proposed were implemented, the shortfall, he suggests, could be made up through other taxes, in part perhaps by higher taxes on imports – which would stimulate local manufacturing.

Article by: www.rawsonproperties.com