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VAT on property sales: Everything buyers and sellers need to know

It’s important to clarify upfront whether the purchase price of a residential property includes VAT, so as to avoid legal and financial ramifications later.

Vat on Property Sales

Article summary

  • VAT is a tax applied to the cost of the supply of goods and services by somebody who is registered as a VAT vendor.
  • Transfer duty is conventionally levied on the sale of immovable property for R1 000 000 and more.
  • The buyer can pay either transfer duty or a purchase price inclusive of the VAT amount, but that can make a big difference to your pocket. You must know what you’re liable for and budget accordingly.

It’s very important to clarify upfront whether VAT or transfer duty is payable on a property transaction.

A guide to VAT on property sales

If the seller is registered for VAT purposes, the purchase price will include VAT, which is payable on transfer by the seller. If the seller is not registered for VAT purposes, then transfer duty is payable by the buyer.

Can the sale of a property incur both VAT and transfer duty?

No, it can only be one or the other, with the deciding factor being whether or not the seller is registered for VAT. However, the difference between them can hurt your pocket if you’re unprepared and haven’t budgeted for paying either transfer duty or a purchase price inclusive of VAT.

What is transfer duty?

Transfer duty is the tax payable by the buyer on a property purchased, unless the seller is a Vat vendor, in which case VAT is payable by the seller.

For example, on a property purchased for R2 million, if the buyer is to pay transfer duty, transfer duty amounts to R50,250 (according to transfer cost calculator). However, if the seller is a VAT vendor, and the property is subject to VAT, the buyer could end up paying a purchase price inclusive of VAT of R2 300 000.

Transfer duty is not applicable on the first R1 000 000.

Transfer duty is calculated incrementally for property acquired on or after 1 March 2020 as follows:

R1 000 001 – 1 375 000 3% on the value above R1 000 000
R1 375 001 – R1 925 000 R11 250 + 6% of the value above R 1 375 000
R1 925 001 – R2 475 000 R44 250 + 8% of the value above R 1 925 000
R2 475 001 – R11 000 000 R88 250 +11% of the value above R2 475 000
R​11 000 001 and above R1 026 000 + 13% of the value exceeding R11 000 000

The current VAT rate is 15%.

How does VAT affect agent’s commission?

The seller must inform the real estate agent if they are a registered VAT vendor as their commission must be calculated on the net purchase price and not the gross purchase price.

A buyer must ascertain whether or not the seller is a VAT vendor. If they are, the property purchase price must include VAT.

VAT is always claimable but it still has to be paid over to the Receiver of Revenue first.

What if the buyer is a VAT vendor?

When VAT is applicable and the buyer is a registered VAT vendor, the buyer may claim the VAT that forms part of the purchase price as VAT input from SARS in the form of a credit on their next VAT return. The contract must state the purchase price plus VAT. That wording is very important.

Are you ready to buy a property involving a VAT vendor? ooba Home Loans, South Africa’s leading home loan comparison service, offers a range of tools that can make the home-buying process easier. Start with their Bond Calculator, then use the ooba Home Loans Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

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