Transfer Duty in South Africa: What Buyers Need to Know Before They Commit

Transfer Duty in South Africa: What Buyers Need to Know Before They Commit

Transfer duty is one of the costs that catches buyers off guard, particularly first-time buyers who have focused their budgeting on the purchase price and the bond. It is a tax payable to SARS on the acquisition of immovable property, and depending on the purchase price, it can add a meaningful amount to the total cost of buying.

Who Pays Transfer Duty and When

Transfer duty is the buyer’s liability. It is calculated on the purchase price or the market value of the property, whichever is higher, and it must be paid before the transfer can be registered at the Deeds Office. The conveyancing attorney submits the transfer duty return to SARS on the buyer’s behalf, and once SARS processes the return and the buyer pays the amount assessed, SARS issues a transfer duty receipt. That receipt is a compulsory lodgement document at the Deeds Office.

Transfer duty must be paid within six months of the date of the deed of sale. Interest applies on late payments.

The Transfer Duty Rate Structure

Transfer duty is calculated on a sliding scale. Properties below the exempt threshold attract no transfer duty. Above the threshold, progressively higher rates apply to each portion of the purchase price that falls within each band. The rates and thresholds are adjusted periodically in the national budget.

A practical illustration

For a property purchased in the R1.5 million to R2.5 million range, the buyer pays nothing on the portion below the exempt threshold, a lower rate on the next band, and a higher rate on the portion above that. Your conveyancing attorney will calculate the exact amount payable on your specific transaction and advise you before lodgement.

When VAT Applies Instead of Transfer Duty

Transfer duty and VAT are mutually exclusive. Where the seller is a registered VAT vendor and the property is sold as part of their business activity, the transaction attracts VAT rather than transfer duty. This is common in the following situations:

New development sales

When a developer sells a newly built residential unit or commercial property, VAT at the standard rate applies to the purchase price. The VAT is typically included in the purchase price stated in the deed of sale, rather than added on top of it, but buyers should confirm this with their attorney.

Commercial property transactions

The sale of commercial property between VAT-registered businesses often falls within the VAT net rather than the transfer duty net. The VAT treatment of commercial property deals depends on the registration status of both parties and the nature of the transaction, and specialist advice is important here.

Exempt Transactions

Certain property transactions are exempt from transfer duty entirely. These include transactions where VAT is payable, certain government property transactions, and transfers between spouses in terms of a divorce order or separation agreement. The specific exemptions are set out in the Transfer Duty Act and your conveyancing attorney will confirm whether your transaction qualifies.

Budgeting for Transfer Duty

Buyers should budget for transfer duty from the outset, before they make an offer. It is not a cost that can be added to the bond in most cases, and it must be paid in cash within the transfer duty payment timeline. Failing to account for it can create a funding gap that delays or derails the transfer.

As a general guide, buyers should ask their conveyancing attorney for a full breakdown of anticipated transfer costs when they receive their first quote, so they can plan accordingly. This breakdown should include transfer duty, conveyancing fees, bond registration costs (if applicable), and any other disbursements that form part of the total cost to transfer.

How Transfer Duty Fits Into the Broader Conveyancing Process

Transfer duty is one step in a multi-stage process. The conveyancer cannot lodge the transfer at the Deeds Office until the SARS transfer duty receipt has been obtained, the rates clearance certificate is in hand, and all transfer documents have been signed and verified. Delays in paying transfer duty flow directly into delays in registration.

For buyers in the Western Cape who want clarity on transfer duty and transfer costs before making an offer on a property, Legal Services Cape Town provides informed advice at every stage of the process.