VAT or Transfer Duty: Which One Applies to Your Property Sale?

When buying a property, you usually must pay a tax. It's either VAT or Transfer Duty, but never both.

1. Who Determines the Tax? The Seller's Status

The general rule is simple: The seller's VAT registration status determines the tax for the sale.

(There are rare exceptions, but they aren't worth worrying about for a general rule.)

2. Is VAT Included in the Price?

• In South Africa, the general rule is that a sales price must be VAT inclusive.
• If the seller is a VAT vendor, the price agreed upon is presumed to include the VAT, unless the contract specifically states that VAT is excluded and must be added on top.
• A Warning for VAT-registered Sellers: Be careful! If your asking price is R1 million, you must remember that a portion of that R1 million is VAT that you will have to pay over to the government (SARS). If you only want R1 million after VAT, your contract must be very clear.
• A Benefit for Buyers: If the sale is a VAT transaction (VAT is included in the price), the buyer doesn't pay Transfer Duty. This should make the buyer willing to pay a slightly higher purchase price, as they are saving the Transfer Duty amount.

3. Can the Buyer Get a Refund? (The VAT Input Claim)

If the buyer is also registered for VAT, they can potentially get back the tax they paid. This is done through a "VAT Input" claim when they submit their next VAT return to SARS.

• Heads Up: SARS may audit your claim before giving you a refund, especially if you are claiming back a lot of money. To claim back Transfer Duty, SARS will usually require proof that the property transfer is complete and that the Transfer Duty was actually paid (you need the transfer duty receipt).

4. Zero-Rated Transactions: Selling a Business

If the property is part of a business that is being sold as a "going concern" (meaning the buyer is taking over the running business):

• Requirement: Both the seller and the buyer must be registered for VAT.
• Result: The transaction will be "zero-rated." This means VAT is technically still involved, but the rate is 0%.
• Net Effect: No VAT and no Transfer Duty are payable.
• To Qualify: The sale must include all the necessary assets to keep the business running, and the business must be making income on the effective date of the sale.
• Key Action: To make sure SARS agrees to the zero-rate, it's wise to include a special clause in the sale contract where both parties confirm they are VAT vendors and that the sale is of a going concern.

The Bottom Line

• Seller's Status = Tax Paid: If the seller is a VAT vendor, you pay VAT (which is usually included in the price). If the seller is not a vendor, you pay Transfer Duty.
• Buyer's Status = Potential Refund: If the buyer is a VAT vendor, they might be able to claim back the VAT or Transfer Duty they paid from SARS.
• If you are unsure: Always talk to an auditor or lawyer before making any agreements, as getting the tax advice wrong can have expensive consequences.