Source: Allen West of Tonkin Clacey Pretoria

Introduction

One of the main considerations of a purchaser when purchasing immovable property, besides the cash that he or she needs to put down in order to cover the purchase price, is the costs involved in order to effect transfer of the property into his or her name. These costs inter alia include transfer fees, deeds office fees and Transfer Duty. Depending on the value of the property involved, a big portion of these costs may be attributable to Transfer Duty.

A house which is sold for a purchase price of R3 500 000-00 by one natural person to another, where the seller is not registered for VAT, will for example result in Transfer Duty in the amount of R201 000-00 being payable by the purchaser.

What if a company owns a property which it wishes to sell and what if the transaction is structured in such a manner that instead of the company selling the property, the shareholder(s) in the company rather sells all the shares in the company to the purchaser, which will result in the purchaser getting access to and control the property. Will there then still be Transfer Duty on such a transaction?

The answer is yes, depending on the circumstances, Transfer Duty may well be payable.

Transfer Duty payable on a share transfer / or transfer of membership interest

Section 2 of the Transfer Duty Act imposes Transfer Duty for the benefit of the National Revenue Fund, which is to be calculated on the value of any property that is acquired by a person. The term “property”, as defined in the Transfer Duty Act, includes a share or member’s interest in a residential property company. “Residential Property Company” in turn, is principally defined as being a company that owns residential property, the fair value of which comprises more than 50% of the aggregate fair value of all the assets of the company.

Therefore, if a person buys 100% of the total shareholding in a company that owns a residential dwelling as its only asset for example, Transfer Duty may be payable by the person acquiring the shareholding. In this instance, the Transfer Duty (if any) will be calculated on the value of the shares acquired.