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Transferring property to a family member in South Africa

If you are considering gifting property to a family member you must do your research to fully understand the financial and tax implications, and the hidden costs.

Transferring Property

Article summary

  • Do your research before deciding to gift property to a family member.
  • Look at all the cost implications of transferring a property to a family member as opposed to bequeathing it.
  • If there is a home loan attached to the property you want to gift, the bond will have to be cancelled and another one applied for by the new owner.

There are practical advantages for those thinking about transferring their property to their family instead of bequeathing it to them after their death but there are legal, tax and cost implications to consider.

If you are considering gifting property to a family member you must do your research to fully understand the financial implications.

“The transfer of the property is usually in the form of a donation (a gift) or the sale of the property to the child. A written contract must be entered into between the parent and child.”

Is it a better option tax-wise to gift property to a family member rather than bequeath it?

SARS treats gifts or donations differently to bequests/ inheritances, but there are also legal and other cost considerations involved. “The following should be carefully considered and the advice of an expert should be obtained,” says Hall. The costs of the donation will be now (when the donation is made), while the costs of the bequest will only happen on one’s death.

Donations tax

If the property is donated to the child or family member, donations tax of 20% is payable by the parent to SARS on the value of the property. Every person is entitled to an annual exemption of R100,000 in respect of donations tax. The first R100,000 of the value of the property will therefore be exempt from donations tax and the balance will attract donations tax. That could be a high cost incurred now.

Estate duty

The above tax implications should be carefully compared to the estate duty implications if the property should be bequeathed to the child or family member (rather than donated). On death, as the property was not donated, the property will be an asset in your hands. Depending on your estate’s value (including taking into account the rebate amount of R3,500,000 (Feb 2019 Budget) that is tax free), you could have estate duty. Sufficient cash must also be available in the deceased to cover the transfer costs. Estate planning advice should be obtained. You may have executor’s fees on the value of the property.

Transfer duty

Bequests of immovable property are exempt from transfer duty. In contrast, if the property is transferred during the lifetime of the parent, the child who acquires the property will be liable for transfer duty on the value of the property above R900,000 (Feb 2019 Budget). SARS requires two independent valuations of the property if the parties to a transaction are related. In the case of both the donation and bequest, transfer fees will be payable to the transferring attorneys.

Other costs

If there is a bond over the property, the outstanding balance of the bond would have to be cancelled. Depending on the financial arrangements between the parties, the recipient of the property may be required to obtain a bond in his or her name in respect of the property before the transfer will be permitted. Attorney’s fees would be payable in respect of the bond cancellation, bond registration and the transfer of the property according to prescribed rates. It is recommended that quotations of all costs be obtained to ensure that there are no unexpected expenses.

What happens if there is still a home loan attached to the property that you want to gift?

Hall explains that if there is a loan attached to the property the bond will have to be cancelled and the new owner will have to apply for a bond in their name.

How much can you afford to spend?

Further to the above, if a family member wishes to gift their immovable property and it is still bonded, the recipient will need to establish whether they can afford the home loan. The donation is of the property value, even if there is a bond.

South Africa’s leading home loan comparison service offers a range of home loan calculators to help people looking to buy a home determine what they can afford and the transfer costs and duties. Click here to access ooba home loans’ free, online prequalification tool, the ooba Bond Indicator. Then, when you’re ready, you can get prequalified or apply for a home loan with ooba.

How much can you afford?

Calculate the home loan you are likely to qualify for and how much you can expect to pay monthly on your bond repayments.

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VAT Increase Disclaimer

Effective 1 April 2018, by order of National Treasury, Value-Added Tax (VAT) will increase from 14% to 15%.

Please note that this increase will retroactively effect VAT-inclusive calculations in articles contained in our website.

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