TAXES, FEES AND COSTS
What taxes, fees and costs are payable, (over and above the purchase price), when purchasing a property in South Africa ? Well, quite a lot unfortunately - and the bad news is that these are fairly high even by most international standards.
Purchasers should be aware that the following taxes, fees and costs must be paid to the transferring attorney, (and where applicable, to the bond attorney), before the process of transferring the property can even begin . These items include transfer duty or value added tax, legal fees, bond registration costs, deeds office tax, stamp duties, “postage and petties”, and, where applicable, a proportion of the municipal rates, all of which are payable up front and on demand . Unfortunately these not inconsiderable sums often become payable before the purchaser is in receipt of any monies due from the sale of his existing property.
Taxes fees and costs are, for the most part, levied on sliding scales relative to the price of the property and will vary, (and almost certainly increase), from time to time
TRANSFER DUTY :
Payable on a sliding scale as follows: - At present no transfer duty is payable on the purchase of a property, by a natural person, costing less than R500 000. From R500 000 to R1 000 000 the duty payable is 5% and from R1 000 000 upwards, 8%. However, property which is purchased through the medium of a company, close corporation or trust attracts transfer duty at a flat rate of 8% on the full purchase price.
To take two examples at random, transfer duty on a R1 000 000 property purchased by a natural person is R50 000, to which must be added attorneys fees of R11 800, (VAT and Deeds Office Tax inclusive) making a total of R61 800. If the same property were to be purchased by a company, trust or close corporation, however, the total would be R80 000 plus attorneys' fees of R11 800 inclusive, making the total R91 800
VALUE ADDED TAX :
In some cases transfer duty may not apply and VAT may become payable. A property purchased from a registered vendor, such as a property developer, may be subject to VAT at 14%. In cases where both buyer and seller are VAT registered at the time of sale VAT may be recoverable. When a property is sold as a bona fide, income producing, going concern and where both parties are VAT registered at the time of the transaction the sale may be zero rated. This is a complex subject. Purchasers are therefore advised to seek advice from their financial advisor, accountant, or local VAT office.
ATTORNEYS FEES :
The transferring attorney charges fees on a sliding scale on a recommended tariff in accordance with the value of the property. For example, fees on our R 1 000 000 purchase are R11, 800 (including Value Added Tax and Deeds Office Tax) while on the transfer of a property costing R1 700 000 fees would be R15 092 inclusive.
The bond attorney, employed by the financial institution to register the mortgage bond, has a different schedule of fees. For example, for a bond of R800, 000 (on a R1 000, 000 property), the amount payable would be R7 354 inclusive.
DEEDS OFFICE TAX :
This is a relatively recent tax, which is also levied on a sliding scale. Tax on a R500 000 purchase would be R400.00 (rising to R500.00 on transfers over R1). Not a lot, you might think - but a precedent has been established.
POSTAGES & PETTIES :
A charge levied by attorneys to cover the cost of telephone calls, postage, faxes, courier service etc. This will normally work out at anything from R250 to R1 000
MUNICIPAL RATES :
Where applicable, both buyer and seller are responsible for payment of a pro-rata share of the annual rates over and above any other costs. A current Rates Certificate, (which will not be issued while any amounts are outstanding), is a now a pre-condition of transfer.
INSPECTION COSTS :
If a mortgage bond is required the financial institution granting the bond will normally charge an inspection fee of R500 to R1 000 or more. In some cases purchasers may be required to retain and pay for their own surveyor.
INSURANCE :
The financial institution granting the bond will normally require the purchaser to take out a bank approved insurance policy for their valuation figure. This is not mandatory and a purchaser is entitled to select his own insurance cover provided it is approved by the bond holder.
SUMMARY :
The 2006 budget somewhat reduced the costs of purchase although these are still significant. Buying a property in South Africa is still expensive. Purchasers ought, therefore, to ensure that they have made provision for these taxes, fees and costs prior to signing any offer to purchase.
NB: Although every effort is made to ensure the accuracy of this information, items such as legal fees may vary somewhat and government taxes and duties are subject to change – these figures should therefore be used as a guide only and will vary over time!
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