You may have seen a property ad in the newspaper with the following phrase in bold: “No Transfer Duty Payable”. There is a saying that, “when things sounds to good to be true, it probably is.” and in this case, it is.
The ad is 100% correct in that there will be no Transfer Duties payable, but what the ad neglects to tell the reader is that he/she will be paying VAT on the property. The VAT will be included in the purchase price.
In each and every transfer op property in South Africa, the transfer will either attract Transfer Duty or VAT, importantly not both. Transfer Duty will be payable by the Purchaser and VAT will be payable by the Seller. Usually when one buys a newly developed scheme from a Developer the property will not be subject to Transfer Duty. The reason therefore is because of the status of the Seller. If the seller is a a registered VAT Vendor, for the purpose of the Act (Value-Added Tax Act, No 89 of 1991), which means that the Seller sells the property in his/her normal course of business, the transfer will attract VAT. It is not only a developer who will attract VAT, but also property speculators or certain property investors which satisfies the above criteria.
The Seller will be obligated to pay VAT on the purchase price of the property, which means the purchaser will not pay any Transfer Duty. The VAT amount is in fact included in the purchase price.
Take the following example:
A purchases a property from B, a developer for an amount of R1 500 000.00. A saw this ad in the newspaper, with the famous phrase, “NO TRANSFER DUTIES”, a knows that in not paying Transfer Duty on a property of R1 500 000.00 saves him thousands of rands, and on that basis he immediately proceeds to purchase the property.
If A bought the property from C, an individual, who is not a registered VAT vendor for the purpose of the Act, for R1 500 000.00, A would have paid R30 000.00 in Transfer Duty. If A buys the property from B, the developer would pay an amount of R210 000.00 in VAT.
If we decrease the purchase price by the VAT payable, the amount that the developer would receive would be R1 290 000.00. Transfer Duty on R1 290 000.00 would be R17 400.00. If we add the Transfer Duty to the purchase price, you would still be R192 600.00 better off.
In conclusion, you will not pay transfer duty in the above example, true, but VAT would be included in your purchase price, which means you have paid far more in VAT than what you would have paid for in Transfer Duty.