We have come to note of the term “Transfer Duty”, but what is it exactly, who pays it when and how much?
If Transfer Duty is payable on all property transfer where the purchase price of the property exceeds the current prescribed R900 000.00, then it is still noted that certain estate agents advertise properties exceeding the above amount with the words “No Transfer Duty Payable’.
In each and every property transaction there will either be Transfer Duty payable, or VAT payable, never both. What is important to note is that Transfer Duty is payable by the Purchaser and VAT Is payable by the Seller. Here is the difference.
“Transfer Duty” is a tax levied on the value of any property acquired by any person by way of a transaction or in any other way.
The current formula for calculating Transfer Duty is as follows:
|Value of Property (R)||Rate|
|0 – 900 000||0%|
|900 001 – 1250 000||3% of the value above R900 000|
|1250 001 – 1750 000||R10500 + 6% of the value above R1250 000|
|1750 001 – 2250 000||R40 500 + 8% of the value above R1750 000|
|2250 001 – 10 000 000||R80 500 +11% of the value above R2250 000|
|10 000 000 and above||R933 000 +13% of the value above R10 000 000|
All transactions where the value of the property is less than R900 000 will be exempt from Transfer Duty. There are other situations where a property will also be exempted from Transfer Duties. These are contained in Section 9 of the Transfer Duty Act, Act 40 of 1949. A few examples are; property passed to an heir either Testate or Intestate, Property Acquired by Governed Municipalities or Water Service Providers Acquisition of property by a spouse either by divorce or as a result of the death of the spouse, Transfer from a partnership into the individual partner’s name. These are only a few examples, Section 9 of the transfer Duty Act contains an exhaust list of exemptions.
Let’s discuss the above by means of the following scenario, A (the purchaser) purchases a property from B (the seller) for an amount of R 1200 000.00, (the purchase price).
Transfer Duty is due and payable by A (the purchaser) and the amount of Transfer Duty payable is then calculated as follows.
R 1200 000 – R900 000 (Exclusion)
= R 300 000
R 300 000 x 3% (According to formula)
= R 9000 Transfer Duty Payable by A.
“Vat is an indirect tax on the consumptions of goods and services in the economy”. The current VAT rate is 14%. To determine whether VAT or Transfer Duty will be applicable in a property transaction, one has to take a look at the status of the Seller.
If the Seller is,
(a) A Registered VAT vendor,
(b) for the purpose of the act
then Vat and not Transfer Duty is due and payable.
Being a registered VAT vendor speaks for itself. “For the purpose of the act”, means that the ordinary course of the business of the Seller has to be of such a nature that it involves the buying and/or selling of properties.
In our Scenario, B (the Seller) now has to pay VAT.
The amount payable calculated as follows:
R 1200 000 x14%
= R 168 000
Even though the unit’s selling price is R 1200 000, which is more than the R 900 000 exemption, VAT will be payable and not Transfer Duty, because of the Status of the Seller.
The above merely is a brief description of Transfer Duty and VAT implications pertaining to a property transaction. Should you have any questions regarding Transfer Duty, VAT or any other property related matter, kindly contact us.