Buying property? Don’t forget about transfer duty

18 June 2015

There is nothing quite as exciting as signing the offer to purchase on your new dream home, especially if you are a first-time buyer. That is, until you receive a statement from the attorneys setting out the transfer and bond costs – which purchasers often forget to factor into their decision to buy a property. These transfer costs include transfer duty.

There is nothing quite as exciting as signing the offer to purchase on your new dream home, especially if you are a first-time buyer. That is, until you receive a statement from the attorneys setting out the transfer and bond costs – which purchasers often forget to factor into their decision to buy a property.

More often than not (and depending on the purchase price) transfer duty is the most expensive “cost” that a purchaser has to pay. This can lead to delays in the transaction as the purchaser may have to source funds to pay transfer duty. A purchaser often does not know what transfer duty is and why he has to pay it.
Transfer duty can best be described as a tax payable by the purchaser of a property to the South African Revenue Service (SARS) for purchasing the property. Transfer duty is calculated on the fair value of the property which is usually the purchase price of the property, in most transactions.

The Minister of Finance decides on the rates of transfer duty payable each year or whether to keep it the same as the previous year. For the 2015/2016 financial year, the Minister of Finance has changed the rates of transfer duty as follows:

1. If a purchaser buys a property for a price between R0 – R750 000, he will not pay any transfer duty to SARS.
If a purchaser buys a property for a price between R750 001 – R1 250 000, then he will pay 3% of the value of the property.
For example: If a purchaser buys a property for R950 000, then transfer duty on R950 000 will be calculated as follows:
• The amount up to R750 000 – Rnil.
• R750 001 – R950 000 (i.e. the difference of R200 000) will be calculated at 3% – R6 000.
Thus R6 000 transfer duty will be payable on the purchase price of R950 000.
2. If a purchaser buys property for a price between R1 250 001 – R1 750 000, then he will pay R15 000 plus 6% of the value of the property above R1 250 000.
For example: If a purchaser buys a property for R1 500 000, then transfer duty will be calculated as follows:
• The amount up to R750 000 – Rnil.
• The amount between R750 001- R1 250 000 (i.e. the difference of R500 000) will be calculated at 3% – R15 000.
• The amount between R1 250 000 – R1 500 000 (i.e. the difference of R250 000) will be calculated at 6% – R15 000.
Thus R30 000 (i.e. R15 000 + R15 000) will be payable on the purchase price of R1 500 000.
3. If a purchaser buys a property for a price between R1 750 001 – R2 250 000, then he will pay R45 000 plus 8% of property value above R1 750 000.
For example: If a purchaser buys a property for R2 200 000, then transfer duty will be calculated as follows:
• The amount up to R750 000 – Rnil
• The amount between R750 001 – R1 250 000 (i.e. the difference of R500 000) will be calculated at 3% – R15 000.
• The amount between R1 250 001 – R1 750 000 (i.e. the difference of R500 000) will be calculated at 6% – R30 000.
• The amount between R1 750 001 – R2 200 000 (i.e. the difference of R450 000) will be calculated at 8% – R36 000.
Thus R81 000 (i.e. R45 000 [R15 000 + R30 000] + R36 000) will be payable on the purchase price of R2 200 000.
4. If a purchaser buys a property for a price above R2 250 000, then he will pay R85 000 plus 11% of property value above R2 250 000.
For example: If a purchaser buys a property for R2 500 000, then transfer duty will be calculated as follows:
• The amount up to R750 000 – Rnil.
• The amount between R750 001 – R1 250 000 (i.e. the difference of R500 000) will be calculated at 3% – R15 000.
• The amount between R1 250 001 – R1 750 000 (i.e. the difference of R500 000) will be calculated at 6% – R30 000.
• The amount between R1 750 001 – R2 250 000 (i.e. the difference of R500 000) will be calculated at 8% – R40 000.
• The amount between R2 250 001 – R2 500 000 (i.e. the difference of R250 000) will be calculated at 11% – R27 500.
Thus R112 500 (i.e. R85 000 [R15 000 + R30 000 + R40 000] + R27 500) will be payable on the purchase price of R2 500 000.

As you can see from the examples, the transfer duty payable can be quite hefty. Transfer duty also has to be paid within 6 months from date of acceptance of the offer to purchase by the seller otherwise penalties will be payable on the late payment of the transfer duty. These penalties are calculated at 10% per annum on the unpaid amount of transfer duty, on each completed month in the period from the day payment was due until the day that the payment is made.

Furthermore, the transfer of the property into the name of the purchaser will not be able to proceed until transfer duty is paid as the deeds office requires a Transfer Duty receipt to be lodged with the documents at the deeds office.
There are certain exemptions as to when transfer duty will not be payable. One of these instances is when VAT is payable on the sale of the property. This usually happens when a purchaser buys property directly from the developer.

If you are at any stage uncertain as to what the transfer costs and transfer duty payable will be, contact a conveyancing attorney to provide you with a pro-forma account in respect of these costs.

Written by: Chérise Hansen | Date Added: 18 Jun 2015

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