24 June 2011

Tax-free transfer of residential property

If you own residential immovable property through a trust, company or close corporation (CC) you should really think about transferring the property into your own name.

Until 31 December 2012, a trust, company or CC can transfer residential property tax-free to beneficiaries or members if they meet certain conditions. These conditions are set out in paragraph 51A of the Eighth Schedule to the Income Tax Act, 1962.

One condition is that the property must be transferred to a person who ordinarily resided in the property for a certain period. But on 2 June 2011, the National Treasury announced that it intends changing the law to scrap this condition. The only requirement in this regard would be that the member or beneficiary had to use the property for domestic purposes. The effect of the proposed change will be that companies, CCs and trusts may be able to transfer second homes and holiday homes to their members or beneficiaries tax-free.

It is very important that you get solid tax advice if you are thinking about transferring residential property from your company, CC or trust. For instance, if the conditions referred to above are met, the entity should not suffer transfer duty or capital gains tax when it transfers the property. But the entity may still suffer donations tax.

Ben Strauss

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