The Best Way for You to Purchase Property
Thinking of buying property? When making such an enormous decision you have to make sure you are informed of the different ways in which to purchase property. There are many options available to you and each one will accommodate your objective.
Should I buy in my Personal Name or in a Trust?
In order to find out what the best option is for you, you need to establish your objective regarding your decision to purchase property. Ask yourself the following questions:
- What do I intend to do with the property? I.e. Am I buying it for a short-term period or will I hold on to the property for an indefinite period of time?
- Am I going to renovate the property and sell it, to make a profit? (If you do this on a regular basis, then you will be classified as a property developer. You will then pay income tax of 40% on the profits and not the Capital Gains Tax (CGT) at 10% - tax rates will be dependent on your income tax rate with the maximum payable).
- Am I buying the property for rental purposes?
- Am I buying the property to give it to my children one day?
- Is estate duty a concern of mine?
- Am I concerned about asset protection?
- Will the property be my primary residence?
Buying a Residential Property
There are two ways in which to purchase residential property: in your personal name or in a trust. Take a look at the advantages and disadvantages of either option.
Personal Name
- The transfer duty is low.
- On purchase price up to R500 000, the transfer duty is R0.
- On purchase price from R500 000 to R1million, transfer duty is 5%.
- If the purchase price is more than R1 million, transfer duty is 8%. If it is your primary residence you will not pay capital gains tax (CGT) on the first R1.5 million of growth in the property.
- If you purchase a property for R2 million and you later sell it for R4.5 million, you would have made R2.5 million profit. You will not pay capital gains tax (CGT) on the first R1.5 million of the profit, so you will pay CGT on R1 million.
The property will be protected from your creditors.
It will not form part of your personal estate so you will NOT pay the following deathbed expenses:
- Estate duty: 20%
- Executor’s fees: 3.99% (Advice: name your spouse or child as executor,
do NOT name a bank as your executor! Your spouse or child could then negotiate executor fees of at least 2% with an accountant or attorney).
No capital gains tax will be payable on your death if your beneficiaries do not sell the property i.e. if it is a holiday home or an investment property. This does not mean CGT will never be payable, it just means it won’t be payable on your death, but only when the property is sold. When the property is sold the money will be available to pay CGT. Your beneficiaries will not be forced to sell the property to pay CGT.
There will be no freezing of the property, as it does not form part of your estate. If you were to sell the property you would have immediate access to the proceeds of the sale.
As the property is owned by the Trust it will not form part of the beneficiaries’ personal estates and no further estate duty will be payable unless the beneficiaries deliberately take the asset out of the Trust and place it under their personal name.
Which option is best for you?
No clue? Well, no stress. BetterBond will keep you up to speed and ensure you make a well-informed decision when it comes to the how's, when's why's and what's of purchasing property.