Legal Talk – Alternate Entities for Acquiring Ownership of Immovable Property in SA


Various vehicles exist for purchasers of immovable property. Transfer can be effected to a purchaser in his personal capacity (a natural person), a juristic entity (a trust, a company or close corporation) and the choice depends on the specific requirements of the purchaser.


The most important factors to be considered by the purchaser when selecting a suitable registration entity are briefly discussed hereunder.

2.1 Transfer Duty

Two amendments to the Transfer Duty Act have a significant influence on the selection of the mode of acquisition.

  • Since the amendment to the Transfer Duty Act on 13 December 2002, transfer duty is now payable on the transfer of a member's interest, shares or beneficial interest in a Trust. Where the purchaser of the interest or shares is a natural person, transfer duty is charged on a sliding scale, while an entity other than a natural person pays transfer duty at a flat rate of 8% of the purchase price.
  • A change in the interpretation of the Act by the Receiver of Revenue has also curtailed the purchaser's ability to sign an agreement of sale personally whilst reserving the right to nominate another person or entity as purchaser usually within a stipulated period from date of last signature. This had afforded the purchaser time to consider various options, e.g. to purchase a shelf close corporation/company or even to nominate a spouse whilst having the Receiver of Revenue construe it as a single transaction only.

    As a result of the Receiver of Revenue's stricter interpretation of nomination clauses, the purchaser will have to have a clear idea of the most suitable entity for acquiring ownership at the time of purchase as the nomination and acceptance thereof must take place on the same day on which the agreement was signed.

    If a purchaser elects either a close corporation or company as the preferred entity of acquisition, the agreement of sale may be signed by the Purchaser "on behalf of a company/close corporation to be formed." Once the company/close corporation is formed, it would have to ratify the decision to purchase the immovable property concerned. In this manner the "nomination" will not attract double transfer duty. Unfortunately the Trust Property Control Act specifically prohibits the acquisition of immovable property by a Trustee for a Trust to be formed.

2.2 VAT

Purchasers must keep in mind that no transfer duty is payable if the seller is registered as a VAT vendor on date of registration, in which event the seller is liable to pay the VAT, charged at 14% to the Receiver of Revenue. It is imperative that the deed of sale clearly indicates whether the purchase price includes or excludes VAT.

2.3 Protection from Creditors

This is an important consideration, especially where the purchaser will be trading.

2.4 Administrative Costs

Certain registration entities are more costly to administer than others.

2.5 Capital Gains Tax and Other Tax Considerations

Whether capital gains tax (CGT), estate duty or other, taxes are payable. The rate depends on the entity selected.


The advantages and disadvantages of the different entities for owning property are considered hereunder to assist in the selection of a suitable option.

3.1 Purchasing in Your Personal Capacity

Transfer duty is paid on a sliding scale, which is lower than the rate of 8% charged in respect of other legal entities.

The first R1.5 million of any profit made on the sale of the property is exempt from CGT, provided the property in question constitutes the individual's primary residence. This applies to South African residents only. Twenty five percent of whatever profit is remaining after the R1.5 million exemption is then added to the individual's income for the year, and taxed at the applicable marginal rate of income tax, resulting in a maximum net CGT cost of 10%. This is the lowest rate of CGT possible.

On death of the individual, his/her estate, which includes immovable property, with certain deductions, will be subject to estate duty. An abatement of R3.5million is granted, but the remaining value is taxed at 20%.

An important consideration is that the property lies at risk of attachment by the purchaser's creditors. For this reason, trading individuals may elect to register property in another entity.


  • Lowest rate of transfer duty and CGT
  • First R1.5 million of profit is exempt from CGT, if primary residence
  • No auditors or accounting officer's fees


  • R1.5 million exemption does not apply to non residents
  • R1.5 million exemption does not apply to second or further properties
  • The properties may be attached by creditors
  • Estate duty payable on death

3.2 Purchasing As a Private Company

Companies purchasing immovable property pay transfer duty at a rate of 8% of the purchase price. Purchasers of shares in a residential property owning company now have to pay transfer duty, as set out in 2.1 above. Furthermore, should the company later dispose of the property, the company will pay CGT on 50% (inclusion rate) of all profit earned from the sale of the property which will be included in the company's taxable income and taxed at a flat rate of tax of 29% (statutory rate) resulting in an effective tax rate of 14.5% of the capital gain.

Further, in order for the shareholder to acquire the profit realised on the sale of the company's asset, the company will have to declare a dividend which will attract secondary tax at the rate of 12.5%.

A significant benefit of this option is that the number of shareholders (which can include trusts, close corporations and companies) in a private company is limited to 50, as opposed to a close corporation, which is limited to 10 natural persons only.

A company is a separate legal entity and the shareholder's assets may only be attached to cover debts incurred by the company if the individual had stood surety for the company.

At the time of acquisition of the immovable property, the agreement of sale can be signed on behalf of a company "to be formed" and the contract ratified by the company after its formation – thereby effectively allowing nominations at the time of signature without the entity being in existence or named at the time of signature.

As a company is prohibited from providing financial assistance to a purchaser for the purpose of or in connection with the acquisition of shares in that company, no bond may be registered over the company's property to finance the acquisition of shares. A company's financial statements are required to be audited.


  • Separate legal entity
  • Number of shareholders only limited to 50
  • Need not be in existence at time of signing agreement


  • Higher rate of transfer duty and CGT than payable by individuals
  • Dividends taxable
  • No bond may be registered over company property to pay for acquisition of shares therein
  • Annual audit is required

3.3 Purchasing As a Close Corporation

Close Corporations face exactly the same transfer duty, CGT and tax implications as companies do. A close corporation, like a company is also a separate legal entity.

Only an accounting officer is required instead of an auditor, thereby reducing administration costs.

Like a company, a close corporation can ratify a contract signed by an individual prior to its formation.

Membership is limited to 10 persons.

A trust can now also be a member.


  • Separate legal entity
  • Lower administration fees
  • Need not be in existence at time of signing agreement


  • Higher rate of transfer duty and CGT than payable by individuals
  • Profits taxable
  • Ownership restricted to 10 persons

3.4 Purchasing As a Trust

Transfer duty is payable at a rate of 8% when a trust acquires immovable property. Trusts attract the highest rate of capital gains tax – 50% (inclusion rate) of all profits gained on sale of trust assets are included in the trust's taxable income and taxed at the rate of 40% (statutory rate), resulting in a net capital gains tax cost of 20% (effective rate) of the capital gain.

Trusts play an important role in estate planning as the property held thereby does not form part of an individuals estate on death, and accordingly there are estate duty savings.

A cost incentive is that trusts at this stage are not required by statute to be audited.

Since trusts are separate legal entities the trust assets cannot be attached by creditors of the beneficiaries, unlike shares or members' interest in a Close Corporation, which provides a safe option to protect assets from attachment.

Unlike close corporations and companies however the trust must be in existence at the date of signature of the agreement as one cannot act as a trustee for a trust in the course of formation.


  • An effective estate planning tool
  • Assets protected from attachment
  • No audit is required


  • Highest rate of CGT
  • Higher rate of transfer duty payable than by individuals
  • Must be in existence at the time of signing agreement of sale


The decision on the appropriate entity for the acquisition of immovable property is not a decision to be taken lightly. This booklet provides a brief guideline and it is recommended that the purchaser consult an attorney prior to signing an agreement of sale in order to obtain expert advice having regard to the purchaser's personal circumstances.

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: 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

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