If you are considering buying a property or if you are in the process of purchasing a home, you would have heard the terms VAT (Value Added Tax) and Transfer Duty. Such a transaction will always be subject to either Transfer Duty or VAT, but never both.
This being said, there is often confusion in the market place concerning the charging of VAT or transfer duty, on the sale of a property.
So what is the difference between the two?
What Is Vat?
Value-Added Tax or VAT is an indirect consumption tax which is placed on all products and services by a VAT vendor. This amount is directly paid to SARS (South African Revenue Service), instead of being deducted from an individual’s income.
What Is Transfer Duty?
Transfer Duty is a tax, levied according to the Transfer Duty Act, on immovable property which is obtained through a transaction (including sales, donations, exchange of property, ceding and here more) and is payable to SARS on transfer.
But when is VAT or Transfer Duty Applicable?
Here are our four golden rules that will help you better understand the application of VAT and Transfer Duty:
- VAT is payable on the sale of commercial property, not residential property (unless the residential property is used for commercial purposes such as a guest house).
- You can never pay VAT and Transfer Duty on the same transaction; it is either the one or the other.
- Where a commercial property is sold with leases in place it is regarded as the sale of an enterprise as a going concern, and no transfer duty is payable, and VAT is calculated at ZERO percent, in other words, there is no VAT payable on the transaction.
- The purchaser must be registered for VAT at the time of the transfer of the property – there is no need for the purchaser to be registered at the date of sale.
Now let’s delve deeper and look at particular instances where VAT or Transfer Duty is payable:
Residential Sale Of Property
Transfer Duty is paid on the sale of residential property; no VAT is payable.
Commercial Sale Of Property
VAT Vendor To VAT Vendor
The seller is liable for VAT and purchaser pays VAT as part of the purchase price but can claim the VAT back.
VAT Vendor To Non-VAT Vendor
The seller is liable for VAT, and the purchaser pays VAT as part of the purchase price but cannot claim VAT back. No transfer duty is payable.
Where Transfer Duty is Payable (Calculated As Below)
- No Transfer Duty on properties under R900 000
- Transfer Duty is calculated at 3% of the value above R900 001 (R900 001 to R1 250 000)
- Transfer Duty is calculated at 6% on the value above R 1 250 000.00 (R 1 250 001 to R 1 750 000). PLUS a flat rate of R 10 500.
- Transfer Duty is calculated at 8% on the value above R 1 750 000, (R 1 750 001 to R 2 250 000). PLUS a flat rate of R 40 500.
- Transfer Duty is calculated at 11% of the value above R 2 250 000 (R 2 250 001 to R10 000 000) PLUS R 80 500.
- Transfer Duty is calculated at 13% of the value exceeding R10 000 000 Plus R933 000.
Where VAT Is Payable (As Calculated Below)
- Seller is liable for VAT at the rate of 15 % of the purchase price.
If you would like to find out more about the Transfer Duty and VAT, or if you have any other questions regarding the property transfer process contact the dedicated team at AMC Hunter Inc today.