Is it time to buy property?

2011-03-10 00:00

IN an effort to stimulate the property market and to provide relief to first-time home owners, the finance minister announced in his Budget speech that transfer duty rates will be decreased.

The reduction in transfer duty rates and the low interest rate environment makes property an attractive investment.

It is now possible to buy a property that costs R600 000 or less without paying any transfer duties. The revised rate structure is shown in the box.

The rate structure applies to properties acquired under purchase agreements concluded on or after February 23, 2011.

Before this date, natural persons who purchased property were liable to pay transfer duty on a sliding scale on the value of the property, whereas property acquired by companies, close corporations, trusts and other non-natural persons was subject to transfer duty at a flat rate of eight percent.

The minister also announced that the above rate structure is now applicable to natural and non-natural persons: companies, close corporations and trusts will be now subject to the sliding scale transfer duty rates. This change is of particular relevance to natural persons who previously would acquire property in their own capacity in order to limit the transfer duty exposure. Now that the playing field have been levelled, natural persons have the option to choose which vehicle they prefer to acquire property.

However, one needs to consider other factors when acquiring property and housing the property in a company, close corporation or trust, because there are administrative costs in running these entities.

From a tax perspective, cognisance needs to be taken of the potential implications for capital gains tax and secondary tax on companies when the property is sold by a company or close corporation. On the other hand, acquiring a property in a trust rather than in the natural person’s hands may have potential estate duty savings.

So before you purchase a property, consider the other potential tax implications when deciding where to house the property, because the transfer duty would be the same irrespective of who acquired the property.

 

KPMG is hosting a PAYE training seminar on March 16. The seminar will cover the basic principles of PAYE and all the changes to PAYE that have occurred in the past few years, as well as the changes that came into effect this year. For more information, call Colleen Schonknecht at 031 327 6049.

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