Did you know that in South Africa, capital gains tax can take up to 18% of your profit? That’s no small change! Different taxes are triggered by different taxable events. And understanding when this happens can help you avoid overpaying. Homeowners, landlords and business owners can potentially save thousands in taxes! We will touch on legal entities and tax breaks – because those can also affect your tax footprint.
But some taxes are forever. And ever.
We’ll discuss those as well.
Property Municipal Property Rates and taxes
Properties need to pay a fee for refuse removal, the water and electricity connection and general upkeep. This is a recurring tax levied by municipalities on the ownership of property. Rates and taxes are based on your property’s assessed value, suburb and size.
There aren’t many rebates for rates and taxes. Properties in rural areas tend to have lower rates and taxes.
Tax on Rental Income
Taxes are based on ownership. If you’re an individual, then rental income profits are taxed at your normal PAYE tax rate (18 – 45 %). For companies, it is 27 %. Trusts are taxed at 45 %. When the trust distributes the profits to its beneficiaries, individual tax rates will apply to the beneficiaries. The trust will not pay the 45 % tax on distributed profits.
Remember to deduct all expenses from your income. These include:
- rates and taxes
- levies
- rental management fees
- bank interest
- maintenance costs
Tax breaks on rental income
Section 13sex is similar to the tax-deductible property depreciation. There are also other such as sections 13quin and 13quat for industrial and government
Taxes when buying property
Although there are a lot of fees payable when buying property, the only tax payable is transfer duties.
Transfer Duty is a tax levied on the value of any property acquired by any person by way of a transaction or in any other way.
– SARS website
Here are some key exemptions:
- Properties under R 1.1 million
- Sales where VAT applies
- Transfers between spouses
- Inherited properties or those in a will
- Transfers in a divorce settlement
- Deals with government entities
- Certain donations
- Certain company restructures
The last point is noteworthy. If a property is in your name, you can transfer the property to a company. You can do this without paying transfer fees and duties using a Section 42 Asset for Share transfer. The only catch is that you will get shares in the company. Legal costs are involved, but it tends to cost a lot less.
Transfer Duty Rates for Individuals and Entities:
There are a lot of fees payable when buying property. These include bond and transfer costs. From a tax perspective, transfer duties are the only true tax payable. Duties are paid on a sliding scale, with a base rate for many:
- Properties up to R 1 100 000:
- No transfer duty (Exempt).
- Properties from R 1 100 001 to R 1 512 500:
- 3% on the amount exceeding R 1 100 000.
- Properties from R 1 512 501 to R 2 117 500:
- R 12 375 + 6% on the amount exceeding R 1 512 500.
- Properties from R 2 117 501 to R 2 722 500:
- R 44 625 + 8% on the amount exceeding R 2 117 500.
- Properties from R 2 722 501 to R 12 100 000:
- R 93 225 + 11% on the amount exceeding R 2 722 500.
- Properties above R 12 100 000:
- R 1 026 000 + 13% on the amount exceeding R 12 100 000.
Taxes when selling property
When selling property, you will need to pay capital gains tax (CGT) on property. It will be a percentage of the proceeds. In short, proceeds are the selling price minus all selling expenses, improvements and exclusions. Improvements are expenses incurred that make the property more valuable. A new kitchen, landscaping the garden or adding solar will all form part of the improvements. However, fixing a broken toilet will fall under maintenance.
Property capital gains tax for individuals
The first R2 million capital gain on a primary residence is excluded from CGT. This does not apply to rental or investment properties. Individuals are entitled to an annual R 40 000 exclusion on capital gains. An Inclusion rate of 40% of the capital gain is added to taxable income. The effective tax rate depends on your personal income tax bracket (18% to 45%). For example:
If you fall in the 30% tax bracket, your effective CGT rate will be:
40 % x 30 % = 12 % effective tax on the capital gain.
Property capital gains tax for companies
The first R 2 million exclusion for a primary residence does not apply. 80% of the proceeds are taxable. This is the inclusion rate. The 80 % is taxed at the corporate rate of 27%. Therefore, the effective tax on the capital gain is:
80% × 27% = 21.6%
Property capital gains tax for trusts and special trusts
The tax law makes a distinction between special trusts and trusts. Special trusts, e.g. for disabled persons are treated differently.
Property capital gains tax for trusts
The first R 2 million exclusion for a primary residence does not apply. The inclusion rate, like companies is 80%. Trust income is taxed at a flat rate of 45%. Therefore, the effective tax on the capital gain is:
80% × 45% = 36%
Property capital gains tax for special trusts
Similar to individuals, special trusts qualify for the R 40 000 exclusion. The first R 2 million exclusion for a primary residence also apply to a special trust. The inclusion rate, similar to companies is 80%. Trust income is taxed at a flat rate of 45%. Therefore, after the exclusion has been deducted, the effective tax on the capital gain is:
80% × 45% = 36%
Property and donations tax
Gifting a property incurs donation tax. Therefore, gifting a property to a trust or a natural person is taxable at 20%. While there’s an annual exemption of R 100 000. Anything above that will be taxable. The tax rate is:
20% on donations up to R30 million.
25% on donations exceeding R30 million.
Property and estate duties
When a property owner passes away, a lot of fees will be payable. In the context of tax, however, it’s only estate duties. The good news is that the first R 3,5 million is exempt. If the estate’s value exceeds this, estate duty applies. The estate duty is calculated as follows:
- 20% on estates up to R 30 million.
- 25% on estates exceeding R 30 million.
Commercial property: Value-Added Tax (VAT) vs. Transfer Duty
Many commercial property sellers are VAT-registered. The law states they need to add 15 % VAT when selling property.
If bought from a VAT-registered developer, transfer duty would not be payable for the following:
- Newly Built Residential Developments – houses, apartments, and units
- Commercial Properties: Office buildings, warehouses and retail spaces
If the seller is adding VAT of 15 % to the selling price, then no transfer duty will be payable.
Depreciation Tax breaks
Unlike the US, South Africa does not have depreciation tax breaks. However, tax breaks such as Section 13sex mimic the behaviour of depreciation. This tax break allows a developer or buyer to deduct up to 100% of the property value from tax. The property does need to be new or unused – ie you’re the first-time owner or developer of the properties. You will not qualify if you buy the property from another owner.
Land Tax: A Rare Expense in South Africa
In certain municipalities, a tax is levied if the vacant land if not developed in a certain amount of time. Land tax applies to undeveloped land or land without improvements. Gansbaai in the Overberg municipality is an example of this.
It’s not common in South Africa.
Conclusion
Tax is complicated. In Short:
- Capital gains tax is paid on the proceeds of a property that is sold.
- Annual tax is paid on rental income. Remember to deduct your rates, taxes, levies, maintenance expenses and bank interest from income!
- Tax breaks include Section 13sex, quin and quat.
There are use cases for owning a property in a company, trust or your name. And each one has their own tax implications.
Need some more reading?
Check below!
- https://www.ooba.co.za/resources/capital-gains-tax-south-africa/
- https://www.expatica.com/za/finance/taxes/a-guide-to-tax-in-south-africa-949409/
- https://www.investopedia.com/terms/t/taxes.asp
- https://www.expatfocus.com/south-africa/guide/south-africa-property-taxes
- https://www.landlordsassociation.co.za/south-african-property-tax-definition-calculation-and-revenue-impact/
- https://www.moore-southafrica.com/MediaLibsAndFiles/media/southafricaweb.moorestephens.com2020/Guides-2021/Moore-Property-and-Tax-Guide-2024.pdf
- https://www.ecovis.com/south-africa/wp-content/uploads/2020/09/Ecovis_2015_Property_Tax_Guide.pdf
- https://www.sars.gov.za/individuals/tax-during-all-life-stages-and-events/tax-and-non-residents/
- https://www.sars.gov.za/wp-content/uploads/Ops/Guides/Legal-Pub-Guide-Gen02-Guide-for-Tax-Rates-Duties-Levies.pdf
