Transfer Duty
1076. Transfer duty
February, 2003

In the past, no property transfer duty was payable on the transfer of shares in a company (or members interest in a close corporation) even if the sole asset of that company / close corporation consisted of immovable property. No registration in the Deeds Office takes place and the immovable property remains owned by the company / close corporation.

The same situation applied in the case of immovable property owned by a trust, which is "sold" by way of a change of beneficiaries.

In respect of "residential property companies", there is a change with effect from 13 December 2002.

"Residential property company" means a company –

·      that holds any dwelling-house, holiday home, apartment, similar abode, improved or unimproved land zoned for residential use (including any real right thereto) other than an apartment complex, hotel, motel, etc., consisting of 5 or more units used for regular or systematic renting to 5 or more persons not connected to that company and other than any fixed property of a vendor forming part of a VAT registered enterprise

·      where the fair value of the property comprises more than 50% of the aggregate fair value of all the assets (other than financial instruments) held by that company on the date of acquisition of an interest in that company.

Transfer duty will in future be payable on the acquisition of a share or interest in a residential property company or a holding company of that company.

Acquisition in relation to property held by a discretionary trust (excluding a special trust as defined) includes the acquisition by a person of a contingent right to any such property falling within the definition of residential property.

At the same time, the stamp duty of 1/4% which was payable on the value of consideration payable for company shares, falls away where transfer duty is now payable.

"Fair value" in relation to a share or member’s interest in a company / close corporation means so much of the fair market value of the property held by the company which constitutes residential property without taking into account any liability in relation to that property so held by that company.

In relation to the contingent right in a trust, "fair value" means the fair value of the property as at the date of the acquisition of that contingent right.

The rate of transfer duty payable is determined by the class of the purchaser. If the purchaser is a natural person, then transfer duty is payable at standard natural person rates, i.e. exempt on the fair value up to R100 000, 5% on the next R200 000 and 8% on the balance. If the purchaser is a company, close corporation or trust, transfer duty is payable at the flat rate of 10% of the fair value. Both the Public Officer of the entity being sold, as well as the seller, are jointly liable for the transfer duty and can reclaim the amount from the purchaser.

These new provisions apply in respect of the acquisition of any shares or member’s interest in a company / close corporation or contingent right in a trust on or after 13 December 2002.

Horwath Zeller Karro

Transfer Duty Act: s(1) definition "fair value", "property", "residential property", "residential property company", "transaction"

Stamp Duties Act: Item 15 of Schedule 1