What does it cost to put my house in a trust?
There are direct costs and there are opportunity costs.
Let’s look at the direct costs first.
Capital Gains Tax
Because you are a connected person in relation to the trust, the sale (you would not want to make it a donation) will be deemed to be at market value and CGT will apply at up to 18% of the increase in value over the base cost (purchase price plus cost of improvements) as if you had sold the house to a third party.
But don’t despair! Because this is your primary residence, you are allowed to make a capital gain of R2m before CGT kicks in.
Again, the transfer duty will apply to the market value, regardless of the sale price. Transfer duty starts at zero, then climbs to a maximum of 13% according to the scale below.
These will depend upon the conveyancer and the value of the property. We recommend KG Tserkezis Inc. Speak to Dino and tell him that Derek referred you.
Interest and Donations Tax
You’ll have to lend the trust, or its company, the money to buy the house from you. Normally, SARS requires that you charge interest on the loan at a minimum of the official rate (which is published by SARS and is currently 5,25%). Any shortfall on the interest is deemed to be a donation each year and is therefore subject to Donations Tax at 20%. However, if the loan is in respect of your primary residence, this requirement falls away.
Bond renegotiation costs
If your house is bonded, you’ll have to renegotiate the bond with the bank and they normally charge a fee.
R2m allowance before CGT
If your primary residence is registered in your name(s), then upon selling it, you are allowed to make a capital gain of up to R2m before CGT kicks in. This would not be the case if the property is owned by a company or a trust.