How can I reduce the taxes on sale of a residential property company to my trust?
The Transfer Duties Act defines “Property” as including the shares of a residential property company so, the sale of those shares attracts Transfer Duty. It also often attracts CGT.
Let’s take an example.
You own a company that bought a residential property for rental. The net Asset Value of the company started at R100 and has now grown to R3m due to the growth in value of the property. Now, you want to sell the shares to the trust that you registered back in 2020.
My first question would be “What was the last tax year for which you submitted tax returns for yourself, your company and the trust?” With luck, you haven’t yet submitted 2025 (all due in Jan/Feb 2026 if you’re a Provisional taxpayer).
My next question is “What is your normal taxable income?”. In the case that gave me this idea, the person who owned the company was 68 years old and retired with no taxable income.
At first glance the tax on the transaction (you can skip the arithmetic if you like) was –
Transfer Duty R97 075 + 11% x (3 000 000 – 2 722 500) = R127 600
CGT ((R3 000 000 – R100)*40% – R857 000) x 41% + R251 258 – R17 235 – R9 444 = R364 824
Total tax = R127 600 + R364 824 = R492 424
Now, what if you sold 1/3rd of your shares in tax year 2025 (last year), another 3rd in tax year 2026 (this year) and the final 1/3rd In March 2026 (next year)?
Each year, the taxes are –
Transfer Duty = Nil. Below the threshold
CGT = ((R1 000 000 – R33)*40% – R370 500)*31% + R77 362 – R17 235 – R9 444 = R59 823
And that, over three years equals total tax of R179 469
Tax saved = R312 954
2 comments
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Re the transfer duty. My understanding is that it is not calculated on the value of one third of the property, ie to bring it below the threshold for transfer duty – it is calculated on the value of the whole property and the resultant amount is divided by three. The result is no saving on transfer duty, just payment being spread over a longer period.
Hi Ken,
I am truly grateful for your comment. One thing that fascinates me in law, is the need to pay very careful attention to the detail of the wording. My dear friend, Duncan Okes, an Advocat and an Attorney and I, a Pr(Eng) and CA(SA), both misread the Transfer Duties Act definition of property many years ago and it resulted in his unnecessarily paying double Transfer Duty. It was years before I picked up our error.
Now, on to your comment. I have used opening and closing * * for emphasis, because I haven’t figured out what the html for underline would do.
Another careful reading of the definition of “property” (d) says “*a share* …….in a residential property company”
And “fair value” (b) states “in relation to *a share* ……..in a company as contemplated in paragraph (d)…….of the definition of “property”, means so much of the fair market value as at the date of acquisition of *that* share ……..of any property held by that company”.
In other words (and this is where Duncan and I went wrong first time). The property is the share, not the residential property itself. I can sell 1 share, 17 shares or any other number of shares in a company and the Transfer Duty (if it is a Residential Property Company) will be applicable to whatever I sell.
Again, my sincerest thanks for your comment.