The big news this week is the amendment to transfer duty payable on property transactions, as described by finance minister Nhlanhla Nene during his Budget speech last week. The effective date of the changes is 1st March 2015. For the lower value property transactions there is some tax relief while the property transactions over R2,250,000 will be paying a higher marginal threshold of 11% instead of the 8% we have become accustomed to. The tax exempt threshold has been raised from R600,000 to R750,000.
It is the first time since 2011 that there has been a change in transfer duty, when the tax exempt threshold was raised from R500,000 to R600,000. Transfer duty in South Africa will now be paid as follows: For all transactions below R750,000, 0% transfer duty; from R750,001 to R1,250,000 3% transfer duty; from R1,250,001 to R1,750,000 6% transfer duty; from R1,750,001 to R2,250,000 8% transfer duty and for the component of a property sale over R2,250,000 transfer duty at 11% will now be payable. As the average of sale within most of the suburbs along the Dolphin Coast which we service is above R2,250,000, the effective rate of transfer duty is set to increase for most of our buyers. To demonstrate the impact of this change in the transfer duty rates payable, consider sales with selling prices of R1,2m, R2,2m, R3,2m, R5,2m, R7,2m and R10,2m.
For a selling price of R1,2m the transfer duty payable from 1st March 2015 onwards is now R13,499.97 compared to R21,999.95 previously - a substantial 38,64% decline or savings of R8,499.98. On a sale of R2,2m the transfer duty is now R80,999.92 compared to R92,999.92 previously - a saving of R12,000 or 12.9%. A selling price of R2,650,000 translates into the same transfer duty under the current structure as previously. As pricing moves beyond that, things start to move quickly in the other way. A sale at R5,200,000 now attracts transfer duty of R409,499.89 compared to R332,999.92 previously - a R76,499.97 or 22.97% increase. A sale at R7,200,000 which is close to the average sale value within Zimbali if we consider all transfers over the past 12 months, will now attract transfer duty 629,499.89 or R136,499.97 (27.69%) more than before 1st March 2015. Once you move above the R10m bracket, the difference starts to become even more significant. A transaction at R12,500,000 now incurs transfer duty of R1,212,499.89 which is R295,499.97 or 32.22% more than before the end of February.
We recently concluded a sale at R27,000,000 within Zimbali - fortunately the purchaser was decisive and although not aware of the pending increase in transfer duty managed to finalize the agreement before the end of February. This decision managed to save the buyer R730,499.97 in transfer duty. The transfer duty payable on the transaction is R2,076,999.92 and would have been R2,807,499.89 had he delayed the transaction into the new financial year.
The government expects to raise an additional R100m by increasing transfer duty to bring it to an expected R7,314bn raised through this revenue source. Imagine how many extra properties that could buy.
For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.
Principal - Seeff Dolphin Coast
Cell: 082 837 9094