Finance Minister Trevor Manuel has given home buyers some relief from transfer duty, but has sounded a warning against wheeling and dealing in the property market.
In his Budget Review this week, Manuel said the South African Revenue Service (SARS) is aware that some taxpayers are under-declaring the income they derive from property transactions, and SARS will give
special attention to this problem in the coming year.
Manuel also plans to clamp down on transactions in which a property is artificially divided, resulting in an under-valuing of the property when the property is transferred.
Artificial divisions usually involve setting up a trust so that the ownership of the property can be separated from its use. The trust buys the right to own the property while the people who set up the trust buy the right to use the property.
When the right to use a property is separated from the ownership right, the value of the right to use the property may be substantially higher than the ownership value, especially if the right to use is over a long period.
The result of the artificial division is that the value of the property is split between the trust and the people involved in the transaction, thereby reducing the transfer duty liability of each party involved.
Amendments to the Transfer Duty Act, which are expected to be enacted the second half of this year, will ensure this loophole is closed, Franz Tomasek, the assistant general manager for legislation at SARS, says.
From March 1 this year, individual home buyers will pay slightly less in transfer duty. Transfer duty is a tax on the purchase of property, and it accounts for a significant portion of the transaction costs involved in buying property.
Furthermore, transfer duty is levied on a sliding scale, so, except for the level below which properties are exempt from transfer duty, the higher the price of the property, the more you pay in transfer duty.
Given the steep increases in property prices over the past few years, Manuel has proposed raising the threshold at which individual buyers become liable for transfer duty from R150 000 to R190 000.
Manuel also proposes raising the thresholds at which individuals become liable for paying progressively higher rates of transfer duty, depending on the value of the property they buy.
From March 1, if you buy a property for between R190 001 and R330 000, you will pay five percent of the value above R190 000. Currently, transfer duty of five percent is payable on properties valued at between R150 001 and R320 000.
From March 1, if you buy a property for R330 001 or more, you will pay transfer duty of R7 000 plus eight percent of the value above R330 000. Currently, if you buy a property for R320 001 or more, you pay transfer duty of R8 500 plus eight percent of the value above R320 000.
The effect of the adjustments is a saving of R2 000 on properties costing between R190 001 and R330 000, and a saving of R2 300 on properties costing over R330 001. For example, you currently pay R22 900 in transfer duty on a R500 000 property, while from March 1, you will pay R20 600. The transfer duty on a R1 million property is currently R62 900, whereas the duty will drop to R60 600 from March 1.
Herschel Jawitz, the chief executive of Jawitz Properties, says the higher transfer duty thresholds have failed to meet the expectations of the property sector. "I believe that the minister has passed up on an opportunity to take a bold step, especially given the significantly higher collections from transfer duties over the last year, estimated at R600 million a month.
"At some point, the government must look at tax relief on mortgage interest up to the R300 000 level. This has been used very successfully in the United States to encourage homeownership," Jawitz says.
- In last year's Budget, Manuel said that stamp duty on lease agreements would be adjusted. In January this year, stamp duty on residential and commercial lease agreements was substantially increased. The penalties for not paying stamp duty have also been raised considerably.