How To Avoid Transfer Duty

When buying or selling property in South Africa, it’s important to consider the costs involved, including transfer duty. Transfer duty is a tax imposed by the government on the transfer of property, and it can add a significant amount to the overall cost of your property transaction. However, there are ways to legally minimize or even avoid transfer duty. In this article, we will discuss some strategies to help you avoid transfer duty and save money on your property purchase or sale.

1. Buying a Property from a VAT Vendor:

One effective way to avoid transfer duty is by purchasing a property directly from a VAT (Value Added Tax) vendor. VAT is a tax levied on goods and services, including property, by registered vendors. If you buy a property from a VAT vendor, you will only need to pay VAT instead of transfer duty. However, it’s important to note that not all properties are sold by VAT vendors, so this strategy may not work for every property.

2. Buying a New or Off-Plan Property:

Another way to potentially avoid transfer duty is by purchasing a new or off-plan property. New properties, especially those purchased directly from developers, are often exempt from transfer duty. This exemption is intended to promote property development in South Africa. However, it’s important to check with the developer and understand the terms and conditions of the exemption.

3. Interpositus Transaction:

An interpositus transaction involves a two-step process where a property is initially transferred to another entity before being transferred to the final buyer. This can be an effective way to legally avoid transfer duty as the initial transfer is exempt from transfer duty. However, it’s important to consult with a legal professional to ensure that the interpositus transaction is structured correctly and complies with all legal requirements.

4. Transfer between Spouses or Close Relatives:

When transferring a property between spouses or close relatives, such as parents and children, transfer duty can be avoided. This exemption applies in the case of a sale, donation, or inheritance between these parties. However, it’s important to keep in mind that this exemption may not apply if the property is subsequently sold to another party within a certain period of time.

5. Trust Ownership:

Properties held in a trust can also potentially avoid transfer duty. By transferring the property to a trust instead of an individual or company, you may be able to save on transfer duty. However, setting up and managing a trust can be complex, so it’s important to consult with a legal and financial advisor to ensure that a trust structure is suitable for your specific situation.

6. Group Structure:

Using a group structure can also potentially help avoid transfer duty. This involves forming a group of companies or entities where the property is transferred within the group instead of directly to the final buyer. However, it’s important to note that this strategy can be complex and may require professional assistance to set up and manage the group structure properly.

Conclusion:

Transfer duty can significantly impact the overall cost of buying or selling property in South Africa. However, by employing various strategies such as buying from VAT vendors, purchasing new or off-plan properties, utilizing interpositus transactions, transferring between spouses or close relatives, opting for trust ownership, or implementing a group structure, you may be able to minimize or even avoid transfer duty. It’s important to thoroughly research and understand the legal and financial implications of these strategies and consult with professionals to determine the best approach for your specific circumstances. By doing so, you can potentially save a substantial amount of money on your property transactions.