The question is asked: “Why do more and more foreigners wishing to sell their South African property contact a tax consultant, before contacting an estate agent?” The answer to this question is that they want to know how much their capital gains tax is going to be and therefore how much their “total profit” would be upon the sale of their South African property. This is usually coastal property at Hout Bay, Somerset West, Simon’s Town, Clifton or Gordons Bay.

It is furthermore also imperative that people contact a tax consultant before their purchase of a property, the reason being that a tax consultant will assist in explaining the tax and capital gains tax implications of buying property in various entities, including but not limited to, the name of a natural person, a company, close corporation and/or a trust.

My advice to expats or temporary retiree residence permits holders is that they purchase the property in more than one of their names. The reason is that such a person usually is not earning any other taxable income in South Africa and therefore this person’s first R234,300 (R468,600 for a couple) of capital gain will not be taxable. Should two expatriate’s or foreigners purchase together they will, therefore, double their tax deduction. This is because the first R17,500 (R35,000 for a couple) of capital gains is annually exempt and only 25% of the balance is taxed according to the income tax tables. In South Africa, individuals are taxed on income over and above the first R54,200(for people that are 65 yrs and older it is R84,200) per individual.

Let me explain by way of an example: If a couple sells their Camps Bay property and their profit is R600,000, then each will pay R2,956 in tax. If the property was in only the husband’s name registered then his tax liability will be R17,410 (R12,010 if he is 65yrs and older).

For South African citizens it is usually the most beneficial to buy their primary residence in their own name, due to an R1,5 million primary residence capital gains tax exclusion/exemption. The additional property should be bought in a trust. Although more transfer duty will be payable if compared to a purchase by a natural person, a trust is favoured in many instances the reason being that a trust affords insolvency protection in certain instances.

Although these are basic general principals, each purchaser and seller should, before signing any agreement of sale and/or purchase, consult their tax expert for advice on such a specific sale as no two sales are alike. For instance, transfer duty could be levied on one sale and VAT on another, of which both could be claimed back, but only in specific instances. Furthermore, should the seller be registered for VAT and the sale be a VAT transaction, but the agent mistakenly not mention in the deed of sale that VAT is payable over and above the purchase price, VAT will have to be deducted from the purchase price, resulting in diminished proceeds for the seller from the sale.

Please also take note that if you are a non-resident and is selling for more than R2 million (Section 35A) that the attorney should then withhold and pay to the South African Revenue Services 5% as withholding tax (as a provisional capital gains tax payment). In most occasions, it should be possible for a tax consultant to arrange with SARS for a tax directive that a lesser percentage be paid(even Rnil). This is because the correct amount of tax is usually much less than 5%. Foreigners will need to register as South African taxpayers before they will be able to sell their South African property.

Advice obtained from a tax expert will in most instances minimise a purchaser’s risk and maximise his/their profit.

You are welcome to contact Fanus Jonck (tax@jonck.net) with your tax queries.