The wealthy have again been targeted to contribute much more to the fiscus in the form of transfer duties when purchasing high value immovable property on or after 1 March 2016.
For the second year in a row, the Finance Minister has in his budget, announced changes to the rates and brackets for the calculation of transfer duty. Substantial changes were made in 2015, the effect of which was that purchasers paid less transfer duty acquiring immovable property with a value up to approximately R2.65 million than they would prior to 1 March 2015, which constituted substantial relief. For properties with a value over R2.65 million, purchasers have paid progressively higher transfer duty from 1 March 2015.
The 2016 budget has introduced a new bracket and category for transfer duty rates. The current highest bracket ceiling is R2, 25 million and above, where duty is calculated at R85 000, 00 plus 11% of the property value above R2, 25 million. A new 6th bracket now provides for duty of R937 500, 00 plus 13% of the property value above R10 million.
Currently, if one acquires a property for R15 million, the transfer duty is R1 487 500, 00 but from 1 March 2016, duty on the same property will cost a purchaser R1 587 500, 00, an increase in R100 000, 00. However, looking back less than a year, if the same property was purchased on 28 February 2015, the duty would have been R1 117 000,00, a substantial R470 500,00 less than that applicable from 1 March 2016.
While any increases in property taxes will be of concern to those parties involved in the property industry, particularly sellers and agents, it is not anticipated that there will be much negative impact on transactions in the R10 million and above category, given the financial status of those purchasers.
The proposed increase in transfer duty rates must be seen in the context of Revenue authorities needing to look at avenues for additional taxes against the background of tough economic times in the country. The Minister re-confirmed in his budget speech that our current taxes on wealth are under review by the Davis Committee, and the wealthy are further targeted with proposed higher capital gains inclusion rates as well as an increase in the annual amount above which capital gains become taxable.
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.
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.
Purchasers of residential properties in the upper R10 million and above price bracket after 1 March 2016 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.
Purchasers who are currently about to purchase properties at a price greater than R10 million have a very short window of opportunity to conclude a transaction and pay the lower rate of duty if they are able to conclude a purchase prior to 1 March. Purchasers are however urged not to rush into such an important and substantial transaction if they are not yet ready to do so, merely to save, what is in effect, a relatively small amount of money compared to the capital cost of the property.