Transfer duty and real rights.

Understanding Transfer Duty on Property Transfers in South Africa.

In South Africa, when it comes to purchasing property, there are various costs involved beyond just the purchase price. One significant cost to consider is transfer duty, a tax levied by the government on the transfer of property from one person to another. Understanding how transfer duty is calculated and any exemptions applicable can help buyers budget effectively and make informed decisions. Let's delve into the intricacies of transfer duty in South Africa.

Transfer Duty Calculation Scales:

Transfer duty is calculated based on the value of the property being transferred and is payable by the purchaser. The South African Revenue Service (SARS) provides from time to time a scale for the calculation of transfer duty, which is determined by the value of the property in question. The transfer duty threshold was raised on 01 March 2023 following the budget speech by the Minister of Finance Mr. Enoch Godongwana. Transfer duty is currently calculated according to the following scales:

• Properties valued from R0,01 to R1 100 000: 0%

• Properties valued from R1,100,001 to R1,512,500: 3% of the value above R1,100,000.

• Properties valued from R1,512,501 to R2,117,500: R12,375 plus 6% of the value above R1,512,500.

• Properties valued from R2,117,501 to R2,722,500: R48,675 plus 8% of the value above R2,117,500.

• Properties valued from R2,722,501 to R12,100,000: R97,075 plus 11% of the value above R2,722,500.

• Properties valued from R12 100 001 and above: R1 128 600 plus 13% of the value above R12 100 000.

Let's use an example property value of R1,800,000 to calculate the transfer duty:

1. In the range of R1,512,501 to R2,117,500: Transfer duty = R12,375 + 6% of (R1,800,000 - R1,512,500) = R12,375 + 6% of R287,500 = R12,375 + R17,250 = R29,625

The total transfer duty payable for a property valued at R1,800,000 would be R29,625.

These calculations demonstrate how transfer duty is determined based on the value of the property and the applicable rates within each range specified by the South African Revenue Service. Buyers should consider these costs when budgeting for property acquisitions in South Africa.

What is the value of transfer duty payable on the acquisition of a real right?

Transfer duty in South Africa is generally payable when purchasing property. However, the transfer of a real right of habitation or a usufruct, may not typically attract transfer duty. These types of rights do not constitute full ownership of the property but rather grant the holder certain limited rights to use and enjoy the property, nonetheless, a real right still qualifies as ‘property’.

In the case of Commissioner for the South African Revenue Service v Short and Another (A289/2017) [2018] ZAWCHC 9; [2018] 2 All SA 100 (WCC); 2018 (3) SA 492 (WCC) (7 February 2018) the crux of the matter revolved around the calculation of transfer duty for a property transaction. The Western Cape Hight Court on 7 February 2018 delivered an interesting judgement on appeal from a judgement of the tax court.

The respondents, the first as bare dominium owner and the second as owner of a real right of habitatio, had bought a property and offered an amount of R4.2 million consideration. The offer was accepted, and the appointed conveyancing attorney proceeded with the transfer of the property accordingly. The respondents had declared the transaction as involving two separate components: the 'bare dominium' and the right of habitatio, each valued at different amounts. According to their transfer duty declaration, the total transfer duty payable would amount to R225,998.49, with specific amounts attributed to each component.

However, the Commissioner argued that the transaction should be treated as a single transaction with an agreed consideration of R4.2 million. Based on this consideration, the Commissioner determined that the transfer duty should be calculated at a higher amount of R281,000.

The disagreement stemmed from the differing interpretations of how the transaction should be assessed for transfer duty purposes. While the respondents treated the transaction as two separate components (R174 526,77 in respect of the declared value of the ‘bare dominium’ and R51 471,72 in respect of the value imputed by the second respondent to the right of habitation)¹  each subject to transfer duty on a sliding scale, the Commissioner viewed it as a single transaction with a lump sum consideration.

Ultimately, the case hinged on the correct interpretation of the relevant provisions of the law regarding the calculation of transfer duty. The court's decision would determine whether the transfer duty should be based on the respondents' declaration of separate components or the Commissioner's view of a single transaction with an agreed consideration. The court decided that the transfer duty should be based on the view of a single transaction and apportioned between the two separate components.

This case underscores the importance of accurately interpreting tax laws and regulations, particularly concerning the calculation of taxes such as transfer duty. It also highlights the significance of clear communication and agreement between taxpayers and tax authorities regarding the treatment of transactions for tax purposes.

Since transfer duty is primarily applicable to the transfer of full ownership of immovable property, it's advisable to consult with a legal or tax professional for specific guidance regarding the transfer of a real right of habitation and any potential tax implications.

Written by: Maret Carroll
Moderated and approved by: Jean-Mari De Beer - le Grange

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¹ Commissioner for the South African Revenue Service v Short and Another (A289/2017) [2018] ZAWCHC 9; [2018] 2 All SA 100 (WCC); 2018 (3) SA 492 (WCC) (7 February 2018)

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