Buying property is one of the largest investments you can make. Often buyers, especially first-time buyers, struggle to determine the most cost-effective way of purchasing a home.
Amos Khumalo, an attorney at Amos Khumalo Incorporated, discusses the different options you have when registering your property and the fees and implications involved in each of them so that you can make an informed decision.
1. Registering the property in your personal name
If you register property in your name, here's what you may be in for:
- Transfer duty: This is payable depending on the value of the property, at the same rate as when the property is bought in the name of a company, close corporation or a trust.
- Capital Gains Tax (CGT): This is a tax charged on the profit made when the property is sold and which is payable at a maximum rate of 10% of the gain. If the property is a primary residence, CGT is only payable if the gain in the value of the property exceeds R1,5 million.
- No protection from creditors: The property can be attached by creditors should the owner face financial trouble.
2. Registering the property in a company/close corporation (CC)'s name
If you purchase your property through your business, this is what you're in store for:
- Transfer duty: This is payable and remains the same (in line with the value of the property).
- CGT: Payable on the gain in the value of the property when the property is sold at a maximum rate of 14% of the gain. If the shares in the company that owns the property are sold, CGT is also payable at the maximum rate of 14%.
- Limited protection from creditors: Since the shares or members' interest (and ultimately the property owned by the company or CC) can be attached by the creditors of the shareholder or member should the shareholder or member be sequestrated (have their assets legally possessed until a debt is paid).
3. Registering the property in an ordinary trust
If you purchase your property through an ordinary trust, the transfer duty (depending on the value of the property) remains the same. However:
- CGT is payable at 20% of the gain in the value of the property in the event that the property is disposed of. There is no R1,5 million rebate that applies to primary residences owned by natural persons. If the property is held in the name of a special trust, ie a trust set up for the benefit of a disabled person, CGT is at a lower rate of 14%.
- There is full protection against creditors, provided that the Trust has not stood surety for any third party and provided any loan accounts owed to a trustee or founder have been settled in full.