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Once upon a time, you could sell the shares in a company that owned fixed property and only pay Securities Transfer Tax (1/4%). Then in December 2002 it all changed.

That was a long time ago, but many people still don’t understand the full implications, so here they are –

A Residential Property Company is one which owns a dwelling or dwellings and their fair value exceeds 50% of the assets of the company, excluding financial instruments.

If shares in that company are sold, then the shares are treated as fixed property and the sale attracts Transfer Duty, not on the value of the properties, but on the sale price of the shares. If the buyer and seller are connected persons, then the sale will be deemed to have been made at market value. Anyone can determine this market value, but SARS can (but seldom does) challenge the valuation.

The rates of Transfer Duty are –

 TransferDutyRates

 It is the purchaser who pays the Transfer Duty, whilst the seller pays any Capital Gains Tax. Securities Transfer Tax is not payable under these circumstances.

Only a registered conveyancer can submit a Transfer Duty return.

This only applies to residential property and not to commercial property.

13 comments

  1. Hi there
    When there is a sale of shares from a property holding company, do you just submit the normal transfer duty declaration. there is no option for “sale of shares”
    Thanks very much

    1. Hi Jenna,
      I have never submitted a Transfer Duty return for the sale of shares in a Residential Property Company. However, be careful. It is the shares that are the property that is being transferred, it is not a deemed transfer of the residential property itself. So, the value of the property in this case is the value of the shares, and this may well be a much lower value than that of the residential property, because it will be Net Asset Value, which is Assets minus Liabilities minus Share Capital.

  2. Hello Sir, I have a question that i cant seem to find an answer to, in the event that a developer of a registered HOA decided to sell his shares within his company, a company that owns the remaining unsold stands within the estate, of which this is a residential estate, the purchaser of such shares would be liable for transfer duties, and if i am understanding correctly, would thus become liable to pay levies to the HOA on these very stands?

    Curently the developer does not pay levies which is well understood and accepted, however should he sell his shares to another party, he feels that the nothing changes and the agreement we have with him remains in tact, however several members of the HOA understand this to be a transfer and thus the buyer will be liable for levies for all the unsold stands, do you perhaps know which way this would go?

    1. Hi Michael,
      I personally have no doubts. The company is a separate juristic person. It developed the estate and, as is usually the case, it has been granted an exemption from levies on empty stands. Who the shareholder of the company is, is irrelevant to that right. The only exception to this would be if the Rules of the HOA clearly stated otherwise which does not appear to be the case.
      I hope this helps.

  3. Hi – I’m a member in a 4-member CC which owns a house converted to office use and zoned residential. Each member owns 25% of the CC’s shares. The bond is paid up but there are two members’ loans totalling nearly R600k. The median of several property valuations is R1.5 mil, which tallies with the municipal valuation. Two of the members (a couple married in COP) have been investment partners from inception, while the other two have been owner-occupiers whose business entities pay rent to the CC. The investment members now want to sell their shares and exit the CC. One has a member’s loan of just over R300k. The other two members want to remain as owners, either by buying out the departing members or by agreeing to a third party buyer purchasing their shares. One of the remaining owners has a member’s loan of about R285k. What is the most appropriate value to attach to the would-be departing members’ shares?

    1. If there are no other assets or liabilities, then the net assets value (NAV) of the CC appears to be R1 500 000 – R600 000 = R900 000
      That puts the value of 25% at R225 000.
      The one shareholder’s loan of R300 000 will need to be repaid as well.
      An alternative way of valuing the CC is to present value all future net rental income.
      And a third way is to take the net profit after tax and multiply it by about 4,3
      If you do multiple valuations, then you take the one that produces the highest value. But i don’t think you need to go that far.
      A valuation is just a starting point. The actual value is that which the sellers and the buyers are prepared to accept.

  4. Why is the payment of transfer duty not applicable on the sale of shares of a company owning only commercial property ?

    1. Hi Andre,
      s1 Transfer Duties Act.
      Definition of Property
      (d) a share (other than a share contemplated in paragraph (g)) or member’s interest in a residential property company
      Note that the “property” that gets transferred is the shares, not the residential property itself. This is important because the residential property might be worth R3m but the shares might be worth zero. For example if you lent the company R300K for the deposit on the bond and the rest was bonded for R2,7m, the company would have an asset of R3m and liabilities of R3m, so the shares would be worthless and no Transfer Duty would be paid.

  5. Hi there

    I own the shares in a company that owns a rental income property.

    According to the latest municipal valuation, the property is valued thus:-
    Business and Commercial R1621460; Residential R978540.

    Would SARS treat my company purely as a COMMERCIAL property owning company?

    Would transfer duty be payable if I sold the shares in the company and how would the transfer duty be calculated?

    Thank you for your kind attention.

    1. Hi Victor,
      It depends entirely on the zoning. If zoned commercial, then it is commercial. If zoned residential, it is residential.
      Transfer duty is payable if zoned residential, but not if zoned commercial. It is the shares that are treated as property, so the transfer duty is based on the selling price of the shares.
      CGT may also apply.
      I hope this clears it up for you. Feel free to book a Zoom meeting here https://harbourassociates.youcanbook.me/ if you want to chat.

  6. Hi There,

    I am trying to get clarity on what the requirements and/or obligations are of the Chairperson when the shares of the residential property company are sold and Transfer Duty are payable.

    Thank you.

    1. HI Eugenie,
      I’m not sure who you mean by the Chairperson. Transfer Duty is payable by the purchaser of the shares, but be careful. It is the shares which are deemed to be property and it is their sale price that attracts the duty, not the fixed property itself. This means that if the company had fixed property of, say, R5m and debts of say, R3,5m then its net asset value (i.e market value) is probably R1,5m and Transfer Duty is payable on R1,5m minus the R1m allowance. Transfer Duty returns can only be submitted by a conveyancer.

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