Budget 2018 after-effects for property investors
In the light of the 2018 budget speech it is important that the transfer duty threshold remains at R 900,000.00 and for more expensive properties the transfer duty above R 10,000,001.00 is unchanged and remains R 933,000.00 plus 13% of the value above R 10,000,000.01. This is good news for both the first-time home buyers as well as for the premium property investors.
Wanting to leave his fixed property to his son, a father would like to know if it is better to transfer the property while he is alive or upon his death.
He also wants guidance and information relating to the calculation of the transfer costs. Excluding any possible financial advantage, transferring the property now or in accordance with the provisions of a will upon death is entirely personal.
“It should be considered in light of any applicable circumstances,” he says. “Should, for example, our reader’s son requires the benefit of ownership as early as possible, transfer of the property while alive would make more sense.” “If, however, the intention is merely for our reader’s son to eventually land up with ownership of the property, the timing may be of less concern.”
If the reader would like his son to have occupation of the property in the interim, this could be attained through a lease. However, he adds that interim use of the property in anticipation of eventual ownership may prove problematic should the son wish to spend money on it, such as renovations. “The transfer of ownership on death may be hampered by debts of the estate and the property may then be sold to cover those debts”.
“Recovery of money spent by the son may then prove difficult.” In the event of a property being transferred, a number of costs are applicable. “The greatest cost to consider is that a transfer duty, levied in accordance with the Transfer Duty Act. The method of calculation may vary over time, but is typically calculated upon the value of the fixed property, with the percentage of transfer duty rising as the value of the property increases.”
Property with a value of R 1 000 000, for example, attracts transfer duty of three per cent of the value above R 900 000, adding that properties below R 900 000 do not have a transfer duty. “An important consideration is that our reader simply gives the property to his son, donations tax will be payable, in addition to transfer duty. This may result in the exercise becoming quite costly”.
According to Miller Bosman Le Roux Attorneys in Somerset West says another fee payable when transferring fixed property is that of the conveyancer. “The law Society of South Africa Publishes a guideline setting out the recommended conveyancing fees charged on registration of fixed property from time to time,” he says.
“Using the example of a property valued at R1 000 000, the transfer fees payable would be R17 200, excluding VAT”. Similar to transfer duty, he says the transfer fees increase as the value of the property concerned increases. However, the fee recommended is only a guideline. “Although typically applied as is, the conveyancing fee may be determined by an agreement between the parties”.
“Another fee payable in respect of the registration of transfer of fixed property is the Deeds Office Levy”. This levy is payable in accordance with the provisions of the Deeds Registries Act and more specifically, the Schedule of Deeds Office fees to that act. “The Deeds Office fee payable also escalates in accordance with the value of the property concerned. On a transfer of a fixed property of R1 000 000, the levy payable is R930. If there is no particular reason for the property to the son prior to the reader’s passing, it can be transferred as part of the administration of the deceased estate”.
The benefit of transferring the property from the estate to the reader’s son is that no transfer duty will be payable and, depending on the size of the estate, no estate duty, as up to R 3 500 000 is exempt. “The other fees will, however, remain payable.” The benefit and risk in the ownership of the property will, in this instance, only transfer to our reader’s son once the registration process has been finalised.”
Author Miller Bosman Le Roux Attorneys