Most sellers will know the fact that certain costs need to be considered when selling a property such as bond cancellation fees says Gerhard van der Linde, Managing Directors of Seeff Pretoria East. This may include the cost of the cancellation of a bond, and clearance certificate costs from the local council, levies due to body corporates as well as the cost of compliance certificates in respect of certain installations if not already in the sellers' possession.
Potentially a major consideration could be Capital Gains Tax, and it is well worth gaining the advice from an accountant or tax adviser to guide you through this process to be prepared should the sale of the property result in a tax liability
An overview of capital gains tax in South Africa and what it means for home sellers. What is it, how much will it be, and what exclusions can you benefit from?
What is capital gains tax?
A tax on an asset being disposed of on or after 1 October 2001 for proceeds that exceed its base cost.
It is not a separate tax but forms part of income tax. No separate registration is required.
"Disposal" refers to:
- Sale of an asset.
- Donation of an asset.
- Expropriation of an asset.
- Vesting of an interest in an asset of a trust in a beneficiary.
- Death of a person.
What does the 2024 budget speech mean for capital gains tax?
As of February 2024, there have been no changes to the capital gains tax rate and exemptions, which are detailed below.
How is capital gains tax calculated in South Africa?
Three factors are used to calculate the tax:
- The capital gain (calculate this by subtracting the base cost of the property, which includes incurred costs such as renovations, transfer costs and attorney fees, from the amount you sold it for.
- The inclusion rate (only 40% of the capital gain will be taxed if you're an individual, and 80% if it's a company or trust selling the property).
- The tax rate. As of February 2024, the marginal tax rate is 18% for individuals, 21.6% for businesses, and 36% for other trusts.
So your capital gains tax = capital gain x 40% inclusion rate x marginal tax rate.
Some things are excluded from the capital gains tax
For example:
- Capital gains on a primary residence (the residence in which the home seller lives) are excluded up to a rate of R2 000 000.
- If you and your spouse own a joint bond, the exclusion of R2 000 000 is split between you, so you each qualify for an exclusion of R1 000 000.
- Capital gains tax on a second property in South Africa qualifies for an exclusion rate of R40 000.
Other exclusions include:
- Retirement benefits.
- Personal use assets.
- Payments in respect of original long-term insurance policies.
- Small business exclusion of capital gains for individuals (at least 55 years of age) of R1.8 million when a small business with a market value not exceeding R10 million is disposed of.
- Instead of the annual exclusion, the exclusion granted to individuals is R300 000 for the year of death.