Budget highlights and summaries of tax changes have been doing the rounds since last week’s budget speech. For property owners in South Africa, here is a convenient, focused take on the current standing of three main property related taxes.
Primary residence exclusion: Unchanged
With limited inflation relief administered by government on personal income tax for yet another year, middle- and high-income earning South Africans are growing restless at the real value degradation of their income.
And the frustration doesn’t end there. While personal income tax tiers fail to keep up with inflation, the last time the primary residence exclusion was increased was in 2012 (from R1.5 million to R2 million, where it still stands currently).
This means that, to the extent that the capital gain achieved on sale of a natural person’s primary residence exceeds R2 million, the excess must be taken into account as a capital gain, i.e. the first R2 million of capital gains is not taxed.
Estate duty and donations tax: Introduction of new wealthy tier
The government has shown through the 2018 budget announcements that the wealthy will continue to be pressed. Ad valorem rates, which are already applied to a range of products such as electronics, motor vehicles, fragrances and even golf balls, have been increased. These are the items that are mainly consumed by the richer end of South African households.
In keeping with the "progressive structure" theme of our tax system, estates worth R30 million and more will now be hit with a 25% estate duty tax (up from 20%) for the portion over R30 million. Property very often makes up estates of these sizes, and this change may make an uncomfortable difference to the estate’s final balance.
Donations above R30 million in a tax year will also be taxed at 25%, so as to bring the donations tax in line with the estate duty tax tiered system. 1 March 2018 will be the implementation date for these new measures.
Source: BDO Pocket Guide 2018
Transfer duty: Unchanged
The South African Revenue Service (SARS) defines transfer duty as "a tax levied on the value of any property acquired by any person by way of a transaction or in any other way".
Last year, the tax system notably increased the tax exemption value from R750,000 to R900,000. That is to say that a transfer of property at a value of R900,000 or less attracted no transfer duty (not to be confused with transfer costs like bond registration and conveyancer fees).
No such adjustments were made this time around, however, again providing no help to buyers of property in the middle to upper segments of the physical property market.
Source: BDO Pocket Guide 2018
Investment Specialist at Discovery Invest
Mark graduated with a Business Science Degree from the University of Cape Town in 2007. He then joined Sharenet, during which time he also completed his B.Com Honours through UNISA. Mark has helped to build, launch and manage derivative and share trading brokerage businesses. He is also a JSE Registered Securities Trader, and has worked on the trading desk at Sharenet. After seven-and-a-half years at Sharenet Mark then moved to Reitway Global (a specialist Global Listed Property Fund Manager) where his passion for property was further kindled. Mark currently works for Discovery Invest as an Investment Specialist on their Investec Managed fund offering. He has over ten years of experience in the equity and asset management sector and can be reached at: email@example.com
The views and opinions (where expressed) in this article are those of the author and do not necessarily reflect the official policy or position of Discovery Invest.