In all property transactions, no matter the size or nature of the property, either Transfer Duty or Value Added Tax (“VAT”) will be payable by the Purchaser to the South African Revenue Service (SARS).

To determine whether VAT or Transfer Duty applies, the status of the Seller must be established first. If the Seller is a registered VAT Vendor with SARS, then the Purchaser will be liable to pay VAT at a rate of 15% on the Purchase Price. If the Seller is not a registered VAT Vendor, the Purchaser will be liable to pay Transfer Duty on the Purchase Price.

Transfer Duty vs. VAT

Transfer Duty is calculated based on the value of the property. A Purchaser is exempt from paying Transfer Duty if the value of the property is R1 100 000 or less. On properties valued over R1 100 000, Transfer Duty is calculated on a sliding scale based on the value of the property.

If the Purchaser is a registered VAT Vendor and the Seller is not a VAT Vendor, Transfer Duty will still be payable. However, the Purchaser may submit a notional input tax claim. This allows the Purchaser to claim a VAT input credit on the purchase price, provided the property qualifies as a “second-hand good” under VAT law. Importantly, the claim is limited to the VAT fraction (15/115) of the purchase price, rather than the full 15%.

VAT and Commercial Property Transactions

For commercial property transactions, an important consideration is whether the sale qualifies as the transfer of a going concern. If both the Seller and the Purchaser are registered VAT Vendors and the property is sold as part of an income-generating business, the transaction may be zero-rated for VAT purposes. This means that VAT is charged at 0%, and no Transfer Duty is payable. However, strict conditions must be met, including that the property must be sold together with its rental income stream and business operations.

When is VAT or Transfer Duty Payable?

• VAT: If the transaction is subject to VAT, the Seller is responsible for paying VAT to SARS, typically in the next VAT period after the transaction is concluded. The Purchaser does not pay VAT directly to SARS unless stated otherwise in the sale agreement.
• Transfer Duty: Transfer Duty must be paid to SARS within six months of the transaction being concluded. If payment is not made within this period, penalties and interest may apply.

Transfer Duty vs. Transfer Fees

Transfer Duty should not be confused with Transfer Fees. Transfer Duty is a tax payable to SARS, whereas Transfer Fees are paid to the Conveyancers (Transferring Attorneys) for handling the legal transfer of ownership.

In summary, the status of the Seller determines whether VAT or Transfer Duty applies. Understanding these differences is crucial to avoid unexpected costs and ensure compliance with tax regulations in South Africa.