VAT or Transfer Fees: who pays what and when?

We’ve all driven past those billboards showcasing a glitzy new apartment block or housing development proclaiming in big, bold letters: “No Transfer Duty”. While it may be technically true, this is one of the most commonly misunderstood – and often misrepresented – areas of property sales: when does Transfer Duty apply, and what other costs come into play when Transfer Duty is not payable?

“The basic rule of thumb,” says Tony Clarke, Managing Director of the Rawson Property Group, “is that Transfer Duty always applies unless the seller is VAT registered and the property forms part of their enterprise.” Clarke explains that this is often the case with new sectional title developments, since people seldom take on such large projects in their individual capacity. Because of that, units in new developments are often not subject to Transfer Duty, but are, instead, subject to 14% VAT.

“The confusion comes in when you start looking at who pays for what,” says Clarke, “since the transfer duty is usually paid by the buyer, but VAT must be paid to the receiver by the seller. Because South African law states that VAT must be included in the purchase price unless the sales contract explicitly says otherwise, it’s very important that the seller is aware of this when setting the price of the property. If not, they are likely to get a very nasty surprise when the Receiver of Revenue suddenly demands a 14% cut.”

Likewise, buyers should be aware of the implications VAT has on a sale, and Clarke cautions against assuming the value of a property is equal to the VAT inclusive price. “When VAT is included in the sales price, it artificially inflates the apparent value of the property by 14%,” he explains, “so you should always consider the purchase price minus VAT when assessing the true value of a purchase.”

Clarke also warns buyers that VAT is more expensive than Transfer Duty, and can add significantly to the cost of a transaction which should be taken into account when assessing affordability. “Transfer Duty is calculated by SARS on a sliding scale ranging from 3% to 11% depending on the purchase price of the property,” he says. “VAT, on the other hand, is a calculated at a flat 14%, which works out to a lot more than Transfer Duty would be on the same sale.”

While Clarke admits that a Transfer Duty free sale is not always a good thing for the buyer, he also believes VAT should not necessarily put a buyer off making a purchase. “Just because you pay VAT on a purchase doesn’t mean it can’t be a good deal,” he says, “especially in instances like buying off plan from a developer. The value of a well-chosen property can easily outgrow the initial transaction costs to give a great return on investment at the end of the day.”

As in all property transactions, however, Clarke recommends that sellers and buyers both use a reputable agent to facilitate any sale. “A good agent will be able to look after your best interests and ensure that you are well aware of all the potential Transfer Duty or VAT implications so that you can make an informed decision with no surprises.”

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 22 Jan 2018
      Moving away from the city to a country or coastal town and a slower-paced life is a frequent new-year resolution for South Africans, but thorough research should be done before you break free from the hustle and bustle, because making the wrong move could turn out to be a very expensive mistake, and even more stressful for you and your family than staying in the “big smoke”.
    • 22 Jan 2018
      Cape Town is home to many breathtaking and historic homes, but House Invermark designed in 1969 by South African architect Gilbert Colyn, with inspiration from two modernist icons: the Glass House by Phillip Johnson and Farnsworth House by Ludwig Mies van der Rohe is in a class of its own.
    • 22 Jan 2018
      2017 was a challenging year for the South African property market in general, despite small pockets of thriving activity in areas like the Western Cape. As we head into 2018, Tony Clarke, Managing Director of the Rawson Property Group, casts his eye forward to property trends and market influences that could make their impact felt in the New Year.
    • 19 Jan 2018
      Extending from Randfontein in the west to Roodepoort in the east and including the towns of Krugersdorp and Magaliesburg, the West Rand has a plethora of property available to residents who choose to make this unique area their home.
    • 19 Jan 2018
      When it comes to financial planning, doing the work to ensure you’re prepared for unexpected emergencies is just as important as ticking off your other goals and New Year’s resolutions. The beginning of the year is also the perfect time to review your various insurance policies.
    • 19 Jan 2018
      No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels.
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
    • 18 Jan 2018
      New year, new goals! If you’ve resolved to purchase your first property in 2018, then this 6-step guide from the Rawson Property Group is a must-read. It will help you navigate and simplify what is often be seen as a confusing process of buying your first home – right from the house-hunt to the house-warming.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us