Legal Talk – Buying Property in South Africa as a Resident or Non-Resident (Part II)
Buying Property in SA as a Resident or Non-Resident
(PART 2 OF A 4 PART SERIES)
SIGNATURE OF DOCUMENTS
Documentation prepared by the conveyancer pertaining to the registration of transfer of the property and any mortgage bond to be registered over the property is required to be signed in black ink and must be authenticated if signed outside South Africa. This is sometimes inconvenient and it is possible, and often advisable, to leave a General Power of Attorney in favour of a trusted person in South Africa to assist in this regard. Where the purchaser is married, and the marriage is governed by the laws of a foreign country and a mortgage bond has been applied for, please note that the spouse of the purchaser will be required to assist the purchaser in signing the mortgage bond documentation. Marriages which are governed by the laws of England and Scotland are exceptions to the aforegoing rule.
THE OFFER TO PURCHASE / AGREEMENT OF SALE
The Offer to Purchase/Agreement of Sale will contain certain of the following standard provisions:
1. Purchase Price
A deposit is not mandatory but serves as a gesture of good faith on the part of the purchaser and an indication of financial ability.
This amount will be invested by the estate agent/conveyancer in an interest-bearing trust account for the benefit of the purchaser.
Provision will be made in the Agreement for a guarantee to be called for in respect of the balance of the purchase price. In general, a guarantee will only be acceptable if issued by a local financial institution which means that the funds will actually have to be remitted to South Africa in order for a local bank to issue such a guarantee or, alternatively, arrangements must be made between a foreign and local bank for a back to back guarantee to be issued. It is, however, possible to negotiate the issue of a Standby Letter of Credit from an overseas institution in certain circumstances.
2. Occupation, Possession, Transfer and Occupational Interest
Occupation is the physical occupation of the property whereas possession is generally deemed to be the date upon which the purchaser assumes responsibility for the property and it is customary for the risk of ownership to pass on the date of possession. Transfer refers to the actual date of registration of ownership in the Deeds Registry in favour of the purchaser.
Occupational interest is the rental payable by the party occupying the property belonging to another where the date of occupation and date of transfer differs, which is better expressed in Rand terms or as a percentage of the outstanding balance of the purchase price.
This is a standard inclusion in all deeds of sale and implies that the property is bought ‘as is’. ‘As is’ means ‘in the exact condition in which the property is found.’ However, all latent defects present in the property within the sellers’ knowledge must be brought to the attention of the purchaser. It is not standard in South Africa to conduct property surveys but these can be arranged with the assistance of the estate agent or an attorney and should be included as a condition of the purchase.
4. Electrical and Beetle-Free Certificates
The property owner is required by law to be in possession of a valid 'electrical compliance certificate' certifying that the electrical installation at the property meets certain statutory safety requirements. The beetle-free certificate certifies that all accessible parts of the property are free of infestation by certain defined beetle and this certificate, whilst a standard inclusion in the Agreement of Sale, is neither a legal requirement nor included in sales of sectional title units. The cost of attending to the necessary repairs in order for the aforesaid certificates to be provided, is generally accepted as being for the account of the seller, although, the parties can contractually agree otherwise.
5. Fixtures and Fittings
A property is sold together with all fixtures and fittings of a permanent nature. Generally fixtures and fittings include anything which is attached to the property or which by virtue of its considerable mass accedes to the property. In the event of any uncertainty, the purchaser is cautioned to ensure that all items intended to be included in the purchase price are specified in writing in the Agreement of Sale. The format of agreements concluded for the acquisition of shares/members interest and loan accounts in property-owning companies/close corporations contains many of the aspects discussed above, although it is substantially different and includes numerous warranties and indemnities given by the seller to the purchaser who acquires the property-owning entity together with its financial history.
CAPITAL GAINS TAX
South African residents are liable for the payment of Capital Gains Tax ("CGT") on the disposal of any asset, subject to certain limited exceptions. Non-residents, however, are only liable to pay CGT on the disposal of the following:
- Immovable property situated in South Africa, including any right or interest in immovable property (this also includes an interest of at least 20% in a company where 80% or more of the value of the net assets of the company is attributable, directly or indirectly, to immovable property in South Africa);
- Assets of a permanent establishment of a non-resident through which trade is carried on in South Africa.
CGT is payable in the year in which the asset is disposed of and is calculated by adding 25% of the capital gain, or profit, to the individuals income for that year deducting the annual rebate of R16 000 and taxing that income at the individuals marginal rate of income tax. The maximum marginal income tax rate for individuals in South Africa is at present 40% (reached at taxable income levels above R490 000). The capital gain is calculated and disclosed in the individual’s income tax return for the year in which it is sold. Thus, if a non-resident disposes of an immovable property in any year of assessment and is not already registered as a South African taxpayer, he or she will have to register as such and submit an income tax return reflecting the calculation of the capital gain and will be liable for the payment of CGT on that gain.
If the asset is held by a Trust, the Trust pays CGT on 50% of the gain at 40%, whereas a company or close corporation pays CGT on 50% of the gain at a tax rate of 28%.
CGT became effective on 1 October 2001 and is thus payable only from that date. The amount of a capital gain is calculated either by deducting the value of the property as at 1 October 2001 (together with the costs of acquiring and improving the property) from the proceeds on disposal of the property or by apportioning the amount of time the property was owned between the period before 1 October 2001 and the period after that date.
You may use the 20% calculation if you do not have records of the acquisition of the costs of the property and you do not have a valuation as at October 1 2001. SARS will deem 20% of your proceeds to be the base cost of the asset.
South African residents do not pay CGT on the first R1.5 million of profit made on the disposal of their primary residence. However, non-residents will not qualify for this exemption if their primary residence is not in South Africa.
Courtesy: STBB Smith Tabata Buchanan Boyes
STBB Smith Tabata Buchanan Boyes is a firm of business-minded lawyers which was established in 1900. At present, the firm consists of over 100 professionals practising from 15 offices throughout South Africa.
Visit their website: www.stbb.co.za or contact them on: +27 (0) 31 583 8060
Disclaimer: The material contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. We accept no responsibility for any loss or damage which may arise from reliance on information contained in this article. © Copyright STBB Smith Tabata Buchanan Boyes 2007. All Rights reserved