Other Taxes Related to Property

Transferring property as a gift — whether to a child, a sibling, or a partner — attracts two separate taxes at once: transfer duty for the recipient and donations tax for the giver.

Whenever someone hands property over as a genuine gift, South African law treats this as a taxable event under two different regimes. The person who receives the property owes transfer duty on the fair market value of the property as at the date the donation is made. At the same time, the person who gives the property is liable for donations tax — a levy that sits within the Income Tax Act and applies to any resident who parts with an asset without receiving adequate value in return.

The rate is straightforward: 20% of the value donated. For donations exceeding R30 million in a single year of assessment, the rate climbs to 25%. Donations tax is due to SARS by the end of the month following the month in which the donation takes legal effect.

The good news is that a natural person enjoys an annual exemption of R100 000: the first R100 000 worth of donations in any year of assessment is completely free of donations tax. Companies and other entities have a much smaller exemption of only R10 000 per year for casual gifts.

Other key exemptions include: gifts between spouses who are not separated; donations that only take effect on the death of the donor; property that is cancelled within six months of the donation; and certain transfers between entities in the same corporate group. Transfers to government bodies and registered public benefit organisations are also exempt.

In community of property marriages, if the donated asset falls within the joint estate, each spouse is treated as having donated half — meaning each can use their own R100 000 annual exemption. If the asset was excluded from the joint estate, the donation is attributed solely to the donating spouse.

Capital Gains Tax (CGT) is not a separate tax — it is added to your income tax in the year you made the gain. But it is calculated very differently, and property owners enjoy some powerful exclusions.

CGT was introduced into South African law with effect from 1 October 2001 and is governed by Schedule 8 of the Income Tax Act. At its core, the concept is simple: if you dispose of an asset for more than you paid for it, the profit (called a "capital gain") forms part of your taxable income for that year.

For property, the gain is the difference between your selling price (the "proceeds") and what you originally paid, including certain costs of improvement (the "base cost"). Not the entire gain is included in your income — only a portion, called the inclusion rate. For natural persons and special trusts, 40% of the net capital gain is included in taxable income. For companies, trusts (other than special trusts) and close corporations, the inclusion rate rises to 80%.

Every natural person also gets a small annual exclusion of R40 000 — no CGT is payable on capital gains below this threshold in any year of assessment. In the year a person dies, this exclusion jumps to R300 000.

To qualify for the primary residence exclusion, the property must not exceed two hectares and must be used mainly for domestic purposes. If a portion of the home is used for business — say, a dedicated office or a rented-out flat — the proportional gain relating to that part will be subject to CGT.

Holiday homes, second properties, time-share units and investment properties do not benefit from the primary residence exclusion. CGT applies fully to any gain made on these disposals. Foreign persons who are not South African tax residents are only subject to CGT on their South African immovable property.

A useful feature: if you make a capital loss in a year, it carries forward indefinitely until you have a future capital gain to offset it against. Losses cannot be deducted against ordinary income, but they can accumulate and reduce future CGT bills.

A servitude is a right that attaches to land — a right of way, a usufruct, or a pipeline easement. Creating one, and cancelling one, each carry their own transfer duty consequences.

Transfer duty is not limited to the sale of property itself. It extends to any acquisition of a real right in land, which includes personal and praedial servitudes. The Transfer Duty Act imposes tax on the fair value of a personal servitude at the moment it is created — and this applies to both positive servitudes (where someone is entitled to do something on the land) and negative servitudes (where the landowner agrees to refrain from a particular action).

The creation of a personal servitude triggers transfer duty because the servitude holder is effectively acquiring a real right in property. The amount of duty is calculated on the fair market value of the servitude itself at the date of its creation — not the value of the underlying land.

Certain cancellations are exempt from this rule: where a servitude has simply "served its time" — for example, where a usufruct terminates automatically on the death of the usufructuary — no transfer duty receipt or exemption certificate is required. The duty only arises where a right is actively waived or cancelled before its natural end.

Praedial servitudes work slightly differently. A praedial servitude benefits a neighbouring piece of land rather than a named person. Transfer duty is similarly payable on the value of the praedial servitude when created, and on the enhancement to the servient property when cancelled. Where a servitude is created in favour of the public — such as a public road — different considerations apply.

For servitudes in favour of a trust or company, the process of creating and registering the servitude requires a separate notarial deed. All relevant documents, including a transfer duty receipt or exemption certificate, must be lodged at the Deeds Office.

A fideicommissum is a testamentary device that lets you leave property to one person on the condition that it passes to a second (or third) person after them. The law now caps how far this chain can extend.

At its simplest, a fideicommissum in a will creates a chain of ownership: the property is transferred to the fiduciary (the first heir), who holds it for their lifetime or another defined period, after which it must pass to the fideicommissary heir (the next person in line). Think of it as "you may use the property, but you must pass it on."

South African law — specifically the Immovable Property (Removal or Modification of Restrictions) Act — places a firm limit on how many generations this chain can run. Any fideicommissum created after 1 October 1965 can extend to a maximum of two successive fideicommissaries. If the will attempts to create a longer chain, the property vests in the second fideicommissary completely free of the fideicommissum. It simply stops there.

When a fideicommissum finally lapses — because the chain has reached its end or because the fideicommissary predeceased the fiduciary — the title deed of the property must be endorsed to remove the condition. The Deeds Registrar handles this on application, usually without insisting on a court order since the relevant facts are apparent from the deeds records.

An important rule for the mortgaging of fideicommissary property: the fiduciary may bond their own fiduciary interest, but the bond must be subject to the fideicommissum. Alternatively, the fiduciary and all ascertained fideicommissaries can join together to mortgage the land to the full extent of their respective rights. In the latter case, the fideicommissaries must also be co-debtors under the bond.

Partition of land subject to a fideicommissum is possible but requires the written consent of all ascertained and competent fideicommissary heirs. Where the fideicommissary heirs are not yet identified, additional procedural requirements apply to protect their future interests.

Share block schemes were once a common form of flat ownership. When these schemes convert to sectional title, each shareholder gains full ownership of their unit — and a significant tax exemption applies.

In a share block scheme, residents do not own their units outright — they own shares in a share block company, and those shares carry the right to occupy a specific unit within the building. It is a form of indirect ownership. When such a scheme is converted into a sectional title scheme (by opening a sectional title register), the former shareholders become entitled to have the relevant units transferred into their own names.

This conversion process does, in principle, amount to an acquisition of immovable property — and would ordinarily attract transfer duty. However, with effect from 1 January 2013, the Transfer Duty Act expressly exempts these conversions from transfer duty.

The conversion process is initiated when the share block company passes a special resolution to convert its immovable property to sectional title units. Once a shareholder submits a written application to the company requesting that their unit be transferred into their name, the conversion proceeds.

The exemption extends further to cover situations where a shareholder had the right to use a specific part of the building — even if that shareholder then acquires only a portion of the building's common areas to which their use-right attached. The legislature's intention was clearly to facilitate these conversions as smoothly and economically as possible.

If you live in an older residential building that was originally structured as a share block, and the body of shareholders has voted to convert: your transfer to sectional title ownership will attract no transfer duty. This is one of the more generous exemptions in South African property law.

Retirement villages operate under a specialised law designed to protect older buyers. The form of "ownership" you acquire here is very different from buying a freehold property — and the tax treatment reflects that.

The Housing Development Schemes for Retired Persons Act (which came into force on 1 July 1989) governs the sale of housing interests in retirement developments to persons aged 50 years or older. The Act defines and regulates a specific product known as a "right of occupation" — and this right is fundamentally different from full ownership.

A right of occupation confers the power to occupy a unit for the duration of the holder's lifetime. It is typically acquired by paying a fixed or determinable sum — either a lump sum or in instalments — in addition to, or instead of, a levy. Crucially, it does not give the purchaser the right to claim transfer of ownership. The underlying land and building remain owned by the developer or the scheme entity.

Because a right of occupation is not full ownership of land, it occupies an unusual position in the transfer duty framework. Standard transfer duty rules apply to rights in land, and the right of occupation — once registrable — can acquire some characteristics of a real right. VAT may apply where the developer selling the right is a VAT vendor, which can substitute for transfer duty.

The Act imposes strict requirements on the written contract for the sale of a housing interest. It must disclose the legal basis of the transaction; specify the duration and limitations of the right; confirm whether the right is registrable against the title deed; describe the land concerned; and state whether the land is held by the seller by ownership or some other tenure.

Importantly, only a retired person (or their spouse) may occupy a unit in a development covered by the Act. The protection runs with the unit — not just the first buyer. This means that when a right of occupation is transferred or disposed of, the same restriction on occupants applies.

Leases of ten years or longer — or for the lifetime of the lessee — cross a threshold in South African law. They become registrable at the Deeds Office and acquire characteristics of real property rights.

The Formalities in Respect of Leases of Land Act came into effect on 1 January 1970, and draws a sharp line between short-term and long-term leases. A short-term lease is informal in nature — it can be oral, it does not need to be in writing, and it binds only the parties to it. A long-term lease is a fundamentally different creature.

The Act defines a long-term lease as a lease that:

The critical consequence of a lease meeting this definition is that it must be registered against the title deed of the leased land in order to be enforceable against creditors of the lessor or a new owner of the land who acquired it for value. Without registration, a future purchaser who buys the land — and was not aware of the lease — is not bound by it after ten years of the lease's commencement.

Once a long-term lease is registered, it becomes a real right in terms of section 102 of the Deeds Registries Act. This has important practical consequences: the lessee's right is enforceable against the whole world, not just the original lessor. The registered lease must be mortgaged by means of a mortgage bond (not a notarial bond), and it may serve as security for a loan.

For agricultural land, additional consent requirements apply before a long-term lease may be registered over a portion of the land — stemming from subdivisions restrictions in agricultural legislation. A surveyor's diagram may be required for the portion being leased.

* Except leases of mineral rights, which are treated as property under the Transfer Duty Act.