FAQ – Tax when selling property to a child

  A father wants to sell his property to his son, but worries about the tax implications. He writes:

I want to sell a property to my son, providing him with a loan which he then repays over 20 years.

Are there any tax implications for him and or me?

Elzahne Henn of Mazars responds.

For the purposes of the response we have assumed that you and your son are both tax residents of South Africa for tax purposes.

We have also assumed that the property was acquired for investment purposes and comprise residential property, but is not your primary residence.

The taxes to consider in respect of the disposal of the property are donations tax, capital gains tax and transfer duty.

Donations tax

If the property is not disposed of at fair market value, there may be donations tax payable at a rate of 20% on the difference between the fair market value of the property and the selling price to your son at the date of disposal.

The legislation provides that, where you dispose of a property and the consideration is in the view of the commissioner of the South African Revenue Service (Sars) not adequate, you will be deemed to have disposed of the property under a donation.

Capital gains tax

Any capital gain as a result of the disposal would be subject to a maximum effective rate of tax of 13.32%.

Your son will also be liable for transfer duty on acquisition of the property, which will be based upon the selling price.

Where Sars is of the view that the selling price is less than the fair market value of the property, transfer duty may be based upon the higher value.

The opinions expressed herein are based on the information as received from you and the assumptions made.

Mazars takes no responsibility for the accuracy of the information so provided and have not verified any part thereof.

If the information as set out herein or our understanding thereof is in any way incorrect, please inform us immediately in order for us to amend the opinions where necessary.

It should be emphasised that the above is only a general outline of very complex provisions so that you can consider in principle whether you require further detailed advice.

We recommend that no action should be taken on the information provided without further detailed advice.

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