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Transfer duty ‘now a wealth tax’

Transfer duty ‘now a wealth tax’

If you’re in the low or middle-income market and you’re looking to buy property, Finance Minister Nhlanhla Nene’s first Budget offers relief for you.

From tomorrow, you will not be liable for transfer duty on property bought for R750 000 or less. And if you buy a property for up to R2 250 000 you will pay less transfer duty than you would have paid before March 1.

But if you’re buying for more than R2 250 000, you will pay R85 000 plus 11 percent on the value above R2.25 million. This is considerably more than you would have paid before March 1: on properties of over R1.5 million, you would have paid R37 000 plus eight percent on the value above R1.5 million.

Describing transfer duty as a wealth tax, Matthew Lester, associate professor at Rhodes Business School, says that by raising the duty to 11 percent on properties over R2.25 million, the government will make back what it loses by exempting properties up to R750 000. Properties with a value below R600 000 currently attract no transfer duty.

David Warmback, a partner in the commercial law department at law firm Shepstone & Wylie, says the changes to transfer duty are “quite radical”. Rates and brackets were last adjusted for the 2011 tax year, he says.

Transfer duty on properties bought for R1.5m and R2.2m is R37 000 and R93 000 respectively, but this will decrease to R30 000 and R81 000 from March 1. Transfer duty on properties purchased for R5m and R10m is R317 000 and R717 000 respectively, but this will increase to R387 500 and R937 500 from March 1.

“While the adjustment to the rates and brackets will certainly assist middle income households – and no doubt boost the residential property market in the R2.65m-and-below price range – it is not anticipated that the increase in rates in the upper price bracket will have any major effect on that market, given the incomes of those buyers,” Warmback says.

But these changes might backfire “when the forces of supply and demand have permeated through the system”, according to Louis Venter, the head of private clients at Maitland, a company that provides legal and tax advisory services.

Using the example of someone buying a property for R20 million, he says transfer duty will increase to “a mind-boggling” R2 037 500.

“At R580 500 more than the 2014 figure (R1 457 000) it represents a single- transaction tax increase of almost 40 percent.”

At some point, he says, wealthy individuals will start to reconsider fixed-asset ownership in South Africa.

“We already see the growth in the upper end of the market dampening relative to the other value brackets. Conversely, scrapping transfer duty on lower-cost properties will most probably have the effect of prices increasing further and faster in those segments. The lower-cost housing market is already experiencing the highest rate of price growth, making the properties even more unaffordable for many first-time house buyers.

“Therefore, the net result of the transfer duty amendment might be that expensive properties become cheaper due to subdued demand and cheaper properties become more expensive due to price filling the void of the lower tax burden on lower income earners and the scrapping of transfer duty. Demand at the lower end of the housing market is high.”

http://www.iolproperty.co.za/roller/news/entry/transfer_duty_now_a_wealth – IOL Property

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