A reader who holds a usufruct over a townhouse, which is registered in her stepdaughters’ names, wants to know how she can determine the usufruct‘s value.
There is no bond on the freestanding townhouse, in which the reader resides.
She and her stepdaughters have decided to sell the townhouse and have agreed to equitably distribute the proceeds of the sale.
See the reader’s question here.
A usufruct is a personal servitude, which entitles the reader the use and enjoyment of the property without acquiring ownership.
A usufruct comprises both rights and obligations on the holder of the usufruct (usufructuary) for the duration of its existence. This is often for the remainder of the holder’s life.
As a personal servitude, the usufruct is linked to the reader alone and may not be alienated.
Strangely, however, it is permissible for the right to use the property to be alienated.
This can be done by way of sale, lease and loan or otherwise. However, such alienation only lasts for so long as the original usufruct was granted.
In the current instance, it would appear that the thinking of the reader and her stepdaughters is to permit the sale and transfer of the property concerned.
The reader, then, having elected to give up her right to the usufruct, would want to be compensated, perhaps allowing her to secure alternative accommodation.
Accordingly, while the usufruct is unable to be sold in a strict sense, the abandonment of it by the reader, thus permitting the sale free of the encumbrance of the usufruct, has a value to all parties concerned.
The SARS Transfer Duty Guide provides an indication of how to determine the value of a usufruct. It is typically the fair market price that is applicable to the determination of the value.
The manner in which the value is calculated includes the nature of the real right in the property and the period for which that property has been acquired.
It also includes the period for which that property is likely to be used when it has been acquired – for example an indefinite period or for the natural life of any person.
In this instance, due to the fact that the usufruct was granted for the remainder of the lifetime of the reader, there is a certain table to be used.
This table, more commonly known as the life expectancy table, is used to calculate the value.
It is also known as the expectation of life and the present value is R1 per annum for life capitalised at 12 per cent over the expectation of life of males and females of various ages.
The guide further states that the amount by which the value of the property has been enhanced in the case of the renunciation of a usufruct should be calculated from the tables as prescribed by the Estate Duty Act.
This calculation is reached by capitalising the annual value of the usufruct over the life expectancy or other period for which the usufructuary was entitled to its enjoyment.
As an example of the calculations concerned, the following formulae are used: usufruct value equals fair value of property multiplied by 12 per cent multiplied by the age factor.
The bare dominium value equals the fair value of the property minus the usufruct value.
It should be considered that transfer duty may be payable as a result of the renunciation of the usufruct in favour of the owners of the property.
The duty is payable due to the fact that the value of the townhouse has been increased, arguably fictionally, due to the full ownership of the property having been restored.
Transfer duty may be payable regardless of the renunciation being gratuitous or for reward.
It is also important to consider that it is the usufructuary, the reader, who is liable to pay the transfer duty on the value of the usufruct.
Due to the complex nature of the calculation and the potential for tax liabilities, it is recommended that the reader takes specialist advice before proceeding.
Although the sale of the property may appear attractive at first glance, it may result in an unexpected and unwanted tax liability.
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