Call to lower tax on property transfers in SA

Countries that place a high value on individual home ownership almost always ensure that their property transfer tax is low and if SA really wants to revive its housing market and get it back to "normality", it should be looking at reviewing the transfer duty scale.

This is according to Rawson Properties MD Tony Clarke, who says the time is ripe to get residential property moving and a reduction in transfer tax would be an excellent way to do it, especially as a further drop in interest rates is now generally considered as unnecessary.

Clarke says where the buyer is a naturalised South African, the South African Revenue Service charges no transfer duty on properties with a purchase price of R500 000 or less.

For properties valued between R500 000 and R1 million, the rate is 5 percent and for properties above R1 million the duty payable is R25 000 plus 8 percent of the value.

By contrast, says Clarke, the UK revenue service charges what is known as stamp duty land tax at a significantly lower rate.

On any property valued below £125 000 (about R1.5 million) British home buyers pay no tax at all.

On properties valued between £125 000 and £250 000 they pay only 1 percent tax. On properties valued £250 000 to £500 000 they pay 3 percent and on those above £500 000 4 percent.

Stressing how debilitating South African taxes can be, Clarke says on the equivalent of £125 000 where the British buyer would pay no duty the South African buyer would have to find about R65 000 in transfer duty.

On a home of £250 000 (R3.1 million) the British taxpayer would pay only £2 500 (R28 750) but the South African taxpayer must find R185 000.

The latest Absa figures, says Clarke, show that the average house price in SA today is priced from R850 000 to R950 000.

Buyers of such houses have to find about R22 000 in transfer duty, as well as rates and levy clearance fees, deeds office fees and VAT on these.

Bearing in mind that most buyers also have to have a 10 percent deposit as the banks are sticking to the National Credit Act criteria it is not at all surprising that buyers are still backing off, he says.

Clarke also feels SA should adopt the UK practice of taxing on the use to which the property is put and not on the holding entity through which it is being purchased.

If a review of taxes is undertaken, Clarke says, he will suggest that all homes up to a value of R1 million pay no transfer duty.

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Posted at 09:05AM Jan 27, 2010 by Editor in Residential  |  Comments[7]