A reader wants to know what the costs will be to transfer a property, valued at R1.5-million, to his child.
There are various fees and taxes potentially payable on the transfer of ownership of a fixed asset.
Transferring the ownership of any asset, movable or immovable, to another person is typically by sale or donation.
All of these should be recorded in writing to avoid potential disputes.
See the reader’s question here.
Where the transaction concerns the sale of immovable property, it must be in writing in accordance with the provisions of the Alienation of Land Act.
Should the transaction be based on a sale, the purchasing party should pay a market-related price.
But if the transaction is for no value in return it is seen as a donation and the donor may be liable for donations tax.
You are allowed to make donations up to the value of R100 000 per tax year before being liable for donations tax.
For donations in excess of this amount, tax is payable equal to 20 per cent of the donated value. It should be noted that donations between spouses are exempt from tax.
Additionally, the sale or donation of an immovable property may be subject to capital gains tax upon disposal.
In such an instance, the first R40 000 of all capital gains realised during the tax year is exempt and thereafter a portion of the gains (40 per cent in the case of a natural person) is included in the taxable income of the taxpayer.
There are certain exemptions relating to fixed property, most notably in respect of what can be defined as one’s primary residence.
Any capital losses incurred in other transactions during the year may be set off against capital gains.
There are also costs and duties specifically related to immovable property.
Transfer duty may be payable in respect of transactions, specifically where immovable property is transferred and registered in the name of the receiving party.
This is a tax payable by buyers of all types of properties and is over and above the selling price.
It is calculated on a sliding scale, with the first R900 000 of the value attracting no duty, while no transfer duty is applicable where VAT is payable on a transaction.
A conveyancing attorney must attend to the transfer process and will charge a fee for the work done, based on a published scale.
The fee payable on the scale is also based on the value of the property that is transferred.
The registration of a bond over the property will incur further costs, so the transfer of ownership of a fixed property could therefore be a costly exercise.
All the fees and taxes may be payable, depending on the nature of the transaction.
While certain aspects cannot be avoided it may be worth consulting an expert to ascertain the most effective way in which to transfer the ownership.
Other factors could also be considered, such as delaying the transfer of the property and dealing with it in a will.
Or, for additional protection, you could transfer the property to a [testamentary] trust, which could also be effected by provisions in the reader’s will.
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