Some property owners may wish to transfer a property in their personal name into a family trust or business entity. There is a common misconception that this transfer can be done by simply changing the ownership details at the deeds office, but the process is more complex than this.
There are generally two reasons why people wish to make this transfer. The first is the possibility of saving Estate Duty Tax upon their death. The Estate Duty Tax saving, if applicable, could amount to 20% of the value of the property.
The second reason is the removal of the opportunity for creditors to attach the property in the event of an unsettled claim against the estate of the person concerned.
Understanding the Private Transfer Process
In instances where the property is already registered in the name of an individual, transferring the property into a Trust or a Company has significant financial costs.
Firstly, transfer duty is payable to SARS based on the value of the property and a conveyancing fee is payable to the transferring attorney. Secondly, in the case of a Trust, upon the disposal of the property, Capital Gains Tax is paid on the capital gain of the property at a rate of 36%; in the case of a Company, the rate is 21.6%; in the case of an individual, the rate is 18%.
Owners who wish to proceed with the transfer of property into a Trust or Company, must enter into a written Sales Agreement which reflects the value of the property at market (SARS will require two property valuations). Such Sales Agreement must also cater for the payment of the purchase price by the Trust or Company, as the case may be, to the seller. This payment can be made in the ordinary course or can be dealt with by way of a loan.
Clients who wish to buy property and avoid a double transfer scenario should consider where the property might be placed before taking transfer.
Trusts and Companies can be ideal mechanisms for the building up of a property portfolio as a legacy for beneficiaries or as a retirement strategy. There are, however, a number of technical issues which are not appropriate for this article, and which could usefully be discussed prior to any final decision being made.
For instance, Trusts and Companies are different legal entities and are subject to different Acts of Parliament. Furthermore, both entities have positive and negative aspects comparatively.
If you are considering one of these types of personal transfers, contact Mark Blanckenberg on 083 629 2429.