When purchasing property in South Africa, buyers need to account for various costs in addition to the purchase price. One of these costs is transfer duty a tax payable to the South African Revenue Service (SARS) when transferring the ownership of property. However, there are important exemptions and conditions where no transfer duty applies, which can save buyers a significant amount of money, particularly when purchasing lower-priced properties or under specific conditions like buying directly from a developer. This article will explore what “no transfer duty” means, the situations where it applies, and what other costs may still be involved in a property purchase.

What is Transfer Duty?

Transfer duty is a tax levied on the acquisition of immovable property. This applies to all individuals purchasing property in South Africa, regardless of whether the acquisition is a result of a sale, donation, or inheritance. The duty is calculated based on the purchase price of the property or the market value, whichever is higher. For properties priced above the transfer duty threshold, the tax can significantly add to the overall cost of purchasing a home. However, transfer duty is distinct from transfer costs, which are the fees paid to the conveyancer for handling the transfer process.

The R1.1 Million Threshold

In 2023, the South African government updated the transfer duty threshold, offering substantial relief to homebuyers. According to the new rules, no transfer duty is payable on properties valued at R1.1 million or less. This exemption benefits first-time homebuyers and those purchasing lower-value properties, as they can save thousands of rands in taxes that would otherwise be due. Previously, the threshold was R1 million, so the adjustment has made homeownership slightly more accessible in a challenging economic climate.

For properties valued above R1.1 million, transfer duty is calculated progressively based on a sliding scale. For instance, if you purchase a property valued between R1.1 million and R1.5125 million, the buyer will only pay 3% on the portion exceeding R1.1 million. The rates increase as the property value rises, with higher-value properties subject to much steeper transfer duty percentages.

When Does "No Transfer Duty" Apply?

Transfer duty is generally applicable to most property transactions in South Africa. However, there are several circumstances where transfer duty is waived or exempted, even if the property’s value exceeds R1.1 million. Here are some common scenarios where no transfer duty applies:

1. Purchasing Property Below R1.1 Million

As mentioned, properties valued at or below R1.1 million are entirely exempt from transfer duty. This allows buyers in this price range to avoid the tax altogether, significantly reducing the cost of acquiring property. Given that this exemption was recently updated, buyers need to check the current threshold regularly as the government may adjust it to account for inflation and other factors.

2. Buying Directly from a Developer

Another scenario where buyers may avoid transfer duty is when purchasing property directly from a developer. In this case, the buyer does not have to pay transfer duty, regardless of the property’s value. This can be an attractive proposition for buyers who are looking at new developments or units sold directly by the developer.

However, there is a critical distinction to be made: when purchasing from a developer, VAT (Value Added Tax) is generally included in the purchase price instead of transfer duty. VAT is currently charged at 15%, and although it might seem like the same amount of tax, the key difference is that VAT is often already factored into the sale price, meaning buyers don’t have to budget for it as an additional cost. It's important to verify whether the price advertised by the developer includes VAT or whether it will be added on top.

3. Inheritance and Divorce Settlements

In some instances, properties acquired through inheritance are also exempt from transfer duty. Heirs and beneficiaries who inherit property from a deceased estate do not need to pay transfer duty, regardless of the property’s value. This applies whether the deceased left a valid will or died intestate (without a will).

Similarly, properties transferred as part of a divorce settlement are typically exempt from transfer duty, provided the transfer occurs according to the terms of a court order. In such cases, the spouse receiving the property will not be liable for transfer duty.

4. Marriage in Community of Property

If a person marries someone who already owns property and the couple chooses to marry in community of property, the spouse automatically gains half ownership of the property. In this case, no transfer duty is payable on the spouse’s share of the property. This is a unique exemption that applies only in such matrimonial arrangements.

Costs Still Payable Despite No Transfer Duty

Even when you are exempt from paying transfer duty, it’s important to note that there are still several other costs associated with buying property. These include:

• Conveyancing Fees: These are the fees paid to the attorney responsible for transferring the property from the seller to the buyer. While transfer duty is a tax paid to SARS, conveyancing fees are paid to the law firm handling the transaction. These fees can vary based on the property’s value.
• Bond Registration Costs: If you are financing the property through a home loan, you will also need to pay for the registration of the bond. This involves additional legal fees, typically handled by a different attorney from the one dealing with the property transfer.
• Deeds Office Fees: These are administrative fees charged by the Deeds Office for the registration of the property in the buyer’s name.

Conclusion

Understanding the concept of no transfer duty can significantly ease the financial burden for property buyers in South Africa, particularly for those purchasing homes valued at R1.1 million or less. By taking advantage of transfer duty exemptions, whether through direct purchases from developers, inheritance, or matrimonial arrangements, buyers can save on what is often a substantial additional cost. However, while transfer duty may be exempted in certain situations, other costs, such as conveyancing fees and bond registration costs, still apply, and buyers should prepare for these expenses when planning their property purchase budget.