A reader is considering transferring his father’s house into his name and wants to know the legal and financial implications.
His father, who is elderly, owns a house with a municipal value of R350 000 and the reader has his blessing for the transfer.
When assets are transferred to other people during their lifetime it is usually based on a sale or donation.
There are other transactions that could underpin the action, but they are not relevant to this discussion.
See the reader’s question here.
When we ‘give’ an asset to someone we are in reality donating it. Legally, we are free to donate anything to anyone, but there could be tax consequences.
Assets to the value of R100 000 can be donated each tax year without incurring donations tax.
Donations tax is payable at a flat rate of 20 per cent on the value of the property being disposed of, up to a value of R30-million.
If the donation exceeds R30-million in one tax year, the rate of tax is 25 per cent.
The donations tax is payable by the donor – in other words, the person who is disposing of his property.
If the reader’s father transfers the property to his son, it would amount to a donation.
The transfer will be based on market value, which is not necessarily the same as the municipal value.
The reader could seek a valuation from a local estate agent to get an idea of what the property might be worth in a normal commercial sale transaction.
When assets are bequeathed to someone it is not viewed as a donation.
Assets are transferred from the estate of the deceased to the recipients by way of nominations in the will.
If there are no nominations it will be done through a residual provision allowing for unstipulated assets to be transferred to one or more heirs.
If there is no will the rules of intestate succession will apply, providing for a mechanism of determination of heirs.
At death, the first R3.5-million is exempt from estate duty and thereafter, up to a value of R30-million, estate duty is levied at 20 per cent.
This rate increases to 25 per cent for estates above the value of R30-million.
Whatever is left to a surviving spouse is exempt from estate duty.
From this it becomes apparent that donations tax is a means of preventing people from trying to reduce the value of their estates in an attempt to avoid estate duty.
In a deceased estate there are costs payable to the transferring attorney, but no transfer duty is payable.
The appointed executor will instruct an attorney to proceed with the transfer after the liquidation and distribution account has been approved.
This means there will be a time delay before our reader can take ownership of the property, provided he is the nominated heir.
If he chooses to take ownership before his father’s death, the process will be quicker, but he needs to be cognisant of potential donations tax implications.
The earlier acquisition of the property may prove to be useful or have value for him for personal or commercial reasons.
But the father and son should weigh this up for themselves and take the necessary legal and tax advice relevant to their personal circumstances.
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