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The bare dominium transfer explained


The bare dominium transfer explained

Category Legal

In South African legal parlance, fixed property is made up of two elements: the outright ownership of the property, and the right of use or enjoyment of it.

A generation ago, it was fairly common amongst farming families that on the death of a father, the outright ownership of the farm was bequeathed to a child and the use or usufruct was bequeathed to the mother for her lifetime.

The estate duty advantages of such planning have since been curtailed by legislation, but there are still advantages to be had in a bare dominium transfer.

The mechanics are that the estate planner, call her X, would transfer the bare dominium in a property to her son, call him Y, or perhaps to a trust.

A full transfer might be preferable, but this is an expensive exercise. In a bare dominium transfer, the value of the bare dominium is much less than the value of the right of enjoyment or usufruct.

Typically, the planner retains the use of the property. Where the property is not subject to a mortgage bond, transfer of bare dominium provides protection from other creditors.

How it works
Let’s say that the fixed property is worth R2 million and X is 64 years old. According to government tables provided for the calculation of such rights, the factor to be utilised in this case is 6,262822.

The annual right-of-enjoyment value is either true market value (basically what X might get as rental on the open market) or 12%, whichever is the lower.

A rental of R20 000/month is reasonable. Thus, the R240 000 annual value of the right of enjoyment is acceptable. This gives a usufruct value, retained in the hands of X, of about R1 500 000. The remaining value of R500 000 is the bare dominium value, and this is transferred to Y.

Because the bare dominium as property is R500 000, which is lower than the R750 000 threshold, no transfer duty is payable.

X pays her conveyancer to do the transfer, free of transfer duty. The provisos in the Transfer Duty Act, which affect the foregoing calculation, apply only when fixed property is transferred to more than one person.

The transaction has no immediate capital gains tax consequences, as X remains the occupier of the fixed property. Donations taxes might be payable on the transfer to Y, depending on whether the property is sold to the son or whether it is an out-and-out donation.

Whichever method of transfer is chosen, the amount of donations tax is far less than would have been the case with an out-and-out transfer of the entire fixed property

Author Peter O'Halloran
Published 27 May 2018 / Views -
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