select
|

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
  
2000
Characters remaining


    Latest Property News
    • 26 Apr 2018
      Banks are showing an increased appetite to lend according to first quarter (Q1 2018) property statistics recently released by ooba, South Africa’s leading home loan originator.
    • 26 Apr 2018
      Moving into a new home comes with such a long list of expenses that one often searches for ways to cut back on costs. Hiring a professional moving company is one of the first expenses that many buyers tend to try and work around, especially now that purse strings are even tighter owing to the VAT increase that took effect this month.
    • 26 Apr 2018
      Investors looking to buy a property offshore can potentially recoup their money faster through short-term rentals than traditional letting options, all the while earning income in a foreign currency.
    • 25 Apr 2018
      Whether you are a seasoned seller or new to the game, putting your home on the market is an exciting moment. To ensure you get the best possible outcome these 8 value adding additions to your home is worth the effort.
    • 25 Apr 2018
      After four years of unprecedented growth fuelled by semigration, the Southern suburbs market faced a number of challenges in 2017, including dwindling affordability and a marked slowing in house price growth with many sellers forced to lower their prices in order to secure a sale.
    • 25 Apr 2018
      Mall of Africa, is celebrating its second year of sensational success. This splendid super-regional shopping centre first opened on 28 April 2016, and has grown in popularity, performance and profile since then.
    • 25 Apr 2018
      While the role of trustee in a sectional title scheme is a voluntary and unpaid position, it is one that comes with huge responsibility. Trustees have a fiduciary duty towards their scheme, says Chinelle Hewit, Operations Manager at sectional title finance company Propell.
    • 24 Apr 2018
      The thing about the property ladder is that at some point in our lives we all have reason to want to climb a rung or two higher. Sometimes, it’s because we’ve outgrown our previous dream home, or because we want to be in a better neighbourhood that’s closer to work or to schools. Sometimes it’s because our circumstances have changed, and we’re taking care of elderly parents or relatives. Sometimes, it’s just because we want a property that reflects the financial status our hard work has won.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK