People & News

2006 Budget speech

Extract from the Budget Speech

Transfer duty
Tips for Trevor this year included an interesting perspective from Norman Greenfield, who suggests that "The high costs of transfer are deterring retirees from downsizing, depriving younger people of the housing stock. Could transfer duty be waived after age 60 or 65? There is only a limited time left to amortise it …". There are ages to take into account on both sides of a property transaction so this is probably not the right way to proceed.

But I agree that a decrease in transfer duties will encourage the secondary housing market and contribute to promoting home ownership. With effect from 1 March 2006, houses costing less than R500 000 will attract no duty. The 5% rate will apply between R500 000 and R1 million, and 8 % thereafter. The flat 10% rate for companies and trusts is reduced to 8%. Taking into account the substantial increase in property prices in recent years, I know that this will be welcome relief to all home buyers, and especially first-time entrants to the property market.

The cost to the fiscus is R4,5 billion. The threshold exemption for stamp duties on leases is raised from R200 to R500 per agreement, reducing the compliance burden for taxpayers and the administrative load on the Revenue Service."

Transfer duty on property in the event of divorce is set to be scrapped this year. Currently the transfer of real estate upon divorce is subject to transfer duty unless the marriage was in community of property. The primary residence CGT exclusion has been raised from R1 000 000 to R1 500 000.

Proposed rates of transfer duty
According to the The Tax Pocket Guide on the National Treasury Website, the new scale which comes into effect from 1 March this year will be as follows:

Property Value Rates of tax
R0 - R500 000 0%
R500 001 - R1 000 000 5% on the value above R500 000
R1 000 001 and above R25 000 plus 8% on the value over R1 000 000

By way of comparison last year's rates were the following:

Property Value Rates of tax
R0 - R190 000 0%
R190 001 - R330 000 5% on the value above R190 000
R330 001 and above R7000 plus 8% on the value above R320 000

As an example in the case of natural persons, on a house worth R500 000, no duty will be payable whereas last year such a sale would have attracted duty of R20 600. On a transfer of R1 000 000, a transfer duty of R60 600 would have been paid last year, as opposed to the proposed amount of R25 000 for this year.

The new transfer duty rates will become effective for all transactions where the date of last signature of a sale agreement is on or after 1 March 2006. It is worth noting that, given the big savings, if some buyers who bought their properties before 1 March now try to alter their contracts to take advantage of the lower rate, they will be guilty of tax evasion. This is illegal. Moreover, estate agents and attorneys who fail to carry out their duties in this regard could risk potential prosecution under the Financial Intelligence Centre Act.

The popular fully revised tables will be published by GhostDigest next week.

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