PROPERTY NEWS - Capital gains tax (CGT) charged on homes bought in trusts has increased exponentially, as well certain assets now having to be listed in the founder of the trust's estate.
"The question now arises whether buying a home in a trust is still a viable option and whether this vehicle is the right one to look after the asset," says Lanice Steward, president of the Institute of Estate Agents of South Africa.
Over the years, different tax implications have been applied to trusts, with the latest being an increase from 27,3% of the gain to 32,8%.
Over the years, different tax implications have been applied to trusts, with the latest being an increase from 27,3% of the gain to 32,8%.
The formula for calculating CGT as set out in the tax legislation is quite complicated but basically comes to a percentage of the total profit made by a taxpayer.
The previous rate for natural persons was 13,7%, 18,6% for companies and close corporations, and 27,3% for trusts. From 1 March 2016 the new rate is 16,4% for natural persons, 22,4% for companies and close corporations, and 32,8% for trusts.
Primary residence
The R2m exemption on gains made on the sale of a person’s primary residence remains unchanged. The government budgets to receive an extra R1bn of CGT from ordinary human being taxpayers and another R1bn from corporate taxpayers in the coming year.
In addition to the increase in CGT, estate duty cannot be avoided as it is proposed that donations or loans to the trust must be included in the estate of the founding member, which eliminates the ability to avoid paying taxes on assets passed to the trust, said Steward.
Lastly, with regard to the budget, the implication of increases in transfer duty on properties above R10m from 11% to 13% could be a slight retardation in price rises in the top end of the market, where values have grown exponentially in recent years.
The R2m exemption on gains made on the sale of a person’s primary residence remains unchanged. The government budgets to receive an extra R1bn of CGT from ordinary human being taxpayers and another R1bn from corporate taxpayers in the coming year.
In addition to the increase in CGT, estate duty cannot be avoided as it is proposed that donations or loans to the trust must be included in the estate of the founding member, which eliminates the ability to avoid paying taxes on assets passed to the trust, said Steward.
Lastly, with regard to the budget, the implication of increases in transfer duty on properties above R10m from 11% to 13% could be a slight retardation in price rises in the top end of the market, where values have grown exponentially in recent years.
The aim of this budget, it seems, is for it not to have a dramatic effect on the lower and middle end of the market which is usually the hardest hit in times of economic uncertainty.
