Transfer duty and the 2015 budget

From 1 March 2015, purchasers of immovable properties will be paying very different transfer duties when acquiring immovable property than those applicable before 28 February. The motivation from the fiscus for the quite radical proposed changes, is to provide relief to middle-income households.

If a property transaction is not subject to VAT, a purchaser is usually liable (subject to certain exemptions) to pay transfer duty to SARS in terms of the Transfer Duty Act No 40 of 1949, based on a sliding scale, depending on the value of the property purchased.

Transfer duty rates and brackets were last adjusted for the 2011 tax year.

The effect of the changes to the transfer duty rates announced in the Budget on 25 February 2015 is that after 1 March 2015, purchasers will pay less transfer duty acquiring immovable property with a value up to approximately R2.3m than they would prior to this date.

For properties with a value over R2.3m, purchasers will pay progressively higher transfer duty from 1 March 2015. Properties with a value below R600,000.00 currently attract no transfer duty, and from 1 March 2015, this threshold will be increased to R750,000.

Transfer duty on properties purchased for R1,5m and R2,2m respectively prior to 1 March is R37,000 and R93,000 respectively, but this will reduce to R30,000 and R81,000 respectively, from 1 March. Transfer duty on properties purchased for R5m and R10m respectively prior to 1 March is R317,000 and R717,000 respectively, but this will increase to R387,500 and R937,500 respectively, from 1 March.

While the adjustment to the rates and brackets will certainly substantially assist middle income households and no doubt boost the residential property market in the R2,3m and below price range in particular, it is not anticipated that the fairly substantial increase in rates in the upper price bracket will have any major effect on that market, given the different income brackets of those purchasers.

Purchasers of residential properties in the upper price bracket after 1 March 2015 will obviously benefit further when purchasing properties directly from developers and other VAT vendor sellers, after the transfer duty rates are increased for higher valued properties. Conversely, there will be a greater difference between the transfer duty rates and VAT applicable to properties below R2,3m, after 1 March 2015.

Many industrial and commercial properties are owned by VAT vendors and sales of such properties attract VAT rather than transfer duty, so the adjustment to the transfer duty rates will not have such an impact on non-residential properties.

Transfer duty is minor source of revenue for the fiscus, and the adjustments proposed should have very little effect on total revenue collected from this source, given the averaging effect that the amended rates and brackets have across the spectrum of prices. The residential property industry in the lower and middle-income category will no doubt be delighted following the Budget announcement on the adjustments to transfer duty.