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In what capacity should you purchase a property?

In what capacity should you purchase a property?

There has been much talk into the pros and cons of the four capacities in which it is possible to purchase and own a property in South Africa. Each of the four ways may have advantages or disadvantages depending upon the individual circumstance, and prospective purchasers are advised to take advice how to buy property from an attorney or an accountant prior to committing themselves to a purchase. It is possible to purchase property as an individual (or jointly in the case of a married couple or partners) , as a Closed Corporation or CC, as a private company or Pty, or finally as a trust. The pros and cons of each of the four will also depend on the valuation of the property.

Buying property as a natural person

When purchasing a property as an individual or a natural person, transfer duty is paid on a sliding scale. Properties purchased for R500,000 and below are exempt from transfer duty, between R500,001 and R1m are charged 5% of the value above R500.000 and properties above R1m a further 8% of the value above R1m. When it comes to selling, if the property is the seller’s primary residence the first R1.5m of any profit is exempt from Capital Gains Tax (this does not apply if the property is rented out). If a primary residence is sold for R2m or less it is also exempt. 
There is a Capital Gains Tax of 25% levied on any profit remaining after the R1.5m exemption.

Buying property as a (Pty) Ltd.

When a property is purchased by a private company or Pty. Ltd., the company must pay a flat rate of transfer duty of 8% of the purchase price. On selling there is an inclusion rate of 50% and a tax of 28%, which means an effective Capital Gains Tax of 14% of the selling price. No estate duty is payable since a private company cannot die. There is also a 10% secondary tax levied on any profits distributed in the form of dividends.

Buying property as a CC.

The taxes and duties levied on Close Corporations during a property sale are identical to those of a Pty Ltd company.

Buying property as a Trust.

When a property is purchased by a Trust, the trust must pay a flat rate of transfer duty of 8% of the purchase price. On selling there is an inclusion rate of 50% and a tax of 40%, which means an effective Capital Gains Tax of 20% of the selling price.
In new legislation individuals owning their primary residence through a company or CC have until 31 December 2012 to transfer the property into their personal name(s) without having to pay any transfer duty, Capital Gains Tax or Secondary Tax. Trusts have also now been included in this window period.

 
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