When Is Vat Payable on A Property Instead Of Transfer Duty

21 October 2013

When buying a property the usual process is that transfer duty is payable on the property but if the property is registered in the name of a company it will be subject to VAT.

Transfer duty is the usual tax levied on the sale of immovable property and VAT is levied on the supply of goods and services by a VAT vendor.

The current rate of VAT is 14% and when buying, it must be borne in mind that the buyer will never pay VAT as well as transfer duty but he must budget for that extra amount if VAT is payable. The usual amount he would pay in transfer fees is around 8%, so the difference might come as a "nasty surprise" if he didn't realise that VAT was payable, said Lanice Steward, managing director of Knight Frank Residential SA.

The one way to get around this is for private people to register for VAT, if they want to do this, the amount traded for the year must exceed R50 000, said Steward. (In the case of a property transaction it would be.) In this way they can claim the VAT back.

But before signing an offer to purchase, ask the right questions, she advises. The buyer must ask whether the seller is a VAT vendor. If the seller is indeed so, then the property forms part of his taxable supply. This means that the property's price must either include VAT or VAT must be added to it.

"A compromise if the seller is selling to a non-VAT vendor could be that the seller pays the difference between the normal transfer duty amount and the VAT amount – this is a possible solution if the buyer is on his limit with regards to the purchase price and the transaction costs," she suggested.

Always remember in the VAT equation, said Steward, that you can claim this VAT back but at the time of selling the property, you will be liable for 14% going to the Receiver of Revenue. People must know and remember this as it can be quite a large amount that has to be paid and must be factored in and taken note of by the agent.

"Another thing to remember if you are selling," said Steward, "is that if the property is VAT registered that you tell the agent this, so that he is aware of this fact. The commission paid to the agent must be calculated on the nett amount and not the gross sales amount."

Thanks to an amendment to the VAT Act No. 89 of 1991 passed in January last year, for vendors buying property from non-vendors, the amount claimed back can now be the full VAT amount rather than the previous calculation which was limited to the transfer duty figure.  

For further information contact Lanice Steward on 021 671 9120 or email lanice@res.za.knightfrank.com