A reader has a question regarding the timing of the payment of Capital Gains Tax when it comes to the sale of an immovable property.
The reader’s case is a little unusual as he explains that the sale in question is an instalment sale over a period of 48 months, which obviously spans more than one tax year.
See the reader’s question here.
To begin, it is useful to consider briefly the mechanics of a sale of an immovable property in instalments.
Most often, the sale of immovable property takes place when a purchaser either finances the acquisition, typically by way of a mortgage bond, or pays cash for the property, or a combination of the two.
Upon the deal being finalised, it is recorded in writing, often by way of an offer to purchase, which serves as the agreement of sale when signed by both parties.
The transfer of the property from the seller to the purchaser then takes place four to six weeks later, with occupation given either on transfer or at an agreed date.
The Alienation of Land Act does make provision for the sale of immovable property in instalments.
The contract, as with any sale of fixed property, must be in writing and address the provisions prescribed in the Act.
How it works is that the purchaser pays the agreed instalments over the agreed period of time.
Other aspects such as insurance, occupation, any interest payable and the like must be addressed and recorded.
Once the purchaser completes his or her payment obligations, he or she can claim transfer of the property, which takes place in the usual manner.
We can thus see that, while the payment structure is a little different to the usual sale of fixed property, the end result is the same. Both methods lead to the transfer of the property, assuming no breach or cancellation of the contract took place beforehand.
The seller is responsible for the declaration and payment of CGT and the payment is triggered by the disposal, or deemed disposal, of an asset.
In the instance of the sale of a fixed property, whether brought about by an instalment sale agreement or otherwise, the trigger for CGT is the disposal of it. And disposal of a fixed property takes place on transfer.
The seller will then have to do the relevant calculations as to the amount on which the CGT is to be applied.
CGT is then declared by the seller on his or her next tax return.
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