Must I pay capital gains tax if I sell my house?

2015-09-23 06:00


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QUESTION: I bought my house, which I’ve lived in since buying it, for about R1 million in 2000, and on my auditor’s advice had it appraised in October 2001 for R1,1 million.

Over the years I had about R200 000 worth of improvements done to the house.

I maintained the house well and recently put it up for sale to move to a smaller townhouse. I now received an offer of R3,7 million for the house.

However, I understand that I might have to pay capital gains tax on the sale, and am worried about how much that may be?

ANSWER: To answer your question we’ll need to make one or two assumptions. I accordingly assume that you are a South African citizen and also that the house is your primary home. Both these facts are important for capital gains tax.

In effect capital gains tax is income tax that has to be paid on capital gain made.

Capital gains tax came into effect on 1 October 2001, and it is therefore good that you have an appraisal of your property for this date.

That will help to determine the base cost of the property.

Income tax is applicable to the disposal (removal, alienation and sale) of assets on or after 1 October 2001, and any capital gain that is realised through such a disposal of assets will be subject to income tax, unless it’s specifically excluded.

With respect to the sale of property, capital gains tax will be imposed on any capital gain realised with regards to property being sold.

Part of the capital gain is included in the tax payer’s taxable income for that tax year. In the context of the sale of a house, the capital gain will then be the difference between the yield (the amount gained by the sale of the property) and the base cost (the amount paid when the property was bought).

The inclusion rate for a natural person or special trust is calculated at 33,3% per year during the year of assessment.

There are also certain annual exclusions of a natural person or special trust.

If the person dies in the year of assessment the annual exclusion is R300 000 and the exclusion for a natural person or special trust per year is R30 000.

Importantly futhermore is the exclusion of the first R2 000 000 capital gain on a primary home of capital gains tax.

Where a part of the primary property is used for business purposes that part of the property will, however, be subject to capital gains tax.

If a second home, holiday home or timeshare is sold for profit, the R2 000 000 exclusion is not applicable, because it will then not qualify as a primary home.

As your property has shown quite a large capital increase over time, the possibility of potential capital gains tax does exist.

However, as the calculations to determine if you will pay any capital gains tax can clearly become quite complex, we strongly advise that you consult a tax specialist to assist you with the calculation of your potential capital gains tax exposure, seeing as circumstances can differ substantially from case to case.


Tertia Botha, Associate Phatshoane Henney Attorneys

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