The 2017 Budget Speech included an amendment to the Transfer Duty calculation applicable to property transactions, increasing the threshold under which no transfer duty is payable from R750,000 to R900,000 and leaving the rest of the sliding scale unchanged since the year before.
This sliding scale indicates that the R350,000 between R900,000 and R1,250,000 of the selling price attracts 3% Transfer Duty; the R500,000 between R1,25m and R1,75m attracts 6% Transfer Duty; the next R500,000 between R1,750,000 and R2,250,000 attracts 8% Transfer Duty; then everything between R1,250,000 and R10,000,000 is taxed at 11%, and for every rand over R10,000,000 of the purchase price 13% in Transfer Duty is payable.
To get an understanding of how Transfer Duty has changed over the past 20 years, Seeff Dolphin Coast Principal Andreas Wassenaar tracked a typical beachfront site in the upmarket Zimbali Coastal Resort and Estate since 1997. He calculated the Transfer Duty payable for seven typical transactions at the prevailing market selling price at the time, and the results make for interesting reading, as he explains below.
“In June 1997 I set a record by presenting an offer on a beachfront site in Zimbali for the grand sum of R1 million. The Transfer Duty at the time for a private individual would have been R70,100 or 7,01% of the purchase price. For transactions where the purchaser was a legal entity, Transfer Duty was a flat 10%. This differentiation continued for a while until it was scrapped in more recent times, making the transfer duty the same regardless of the legal status of the purchaser”.
“By June 2001 this same beachfront site was valued at R1.5 million and the Transfer Duty would then have been R109,700 or 7,31% of the purchase price. By June 2004 the market was gaining momentum and the beachfront sites were selling at R3 million. Transfer Duty at this stage would have been R222,900 or 7,43% of the price. By June 2007 the market was steaming ahead and vacant land on the beachfront was trading at R7 million. This transaction would have attracted transfer duty of R505,000 or 7,21% of the price (a reduction in percentage). Interestingly, at this stage the Transfer Duty for a legal entity as a purchaser was even reduced to 8% from 10%”.
“By June of 2016 the same vacant land was trading at R10.5 million, and this level of sale would have attracted Transfer Duty of R1,002,500 or as much as 9,55% of the purchase price. This indicates a significant deviation in the effective rate of Transfer Duty and a dramatic increase in this tax on property transactions. There is no doubt this has impacted on the decisions by buyers and sellers to transact in property, as they will first carefully consider the transaction costs involved”.
“If the same vacant site was sold this year, it would trade at R12 million – and the Transfer Duty payable would be a eyebrow-raising R1,193,000 or 9,94% of the purchase price in terms of the Transfer Duty structure effective from 1 March 2017. We can therefore see that as property prices have inflated over time, the Transfer Duty burden has become a far more significant part of the transaction.”