Should I Buy Property In My Name or in a CC, Company or Trust?

And the 31 December 2012 deadline to transfer into personal name

Various entities can hold ownership of immovable property. Transfer can be effected to a natural person in his personal capacity or to a legal entity that is a trust, company (Co) or a closed corporation (CC).

There are specific tax implications to consider. Since 2001, there are almost no more tax benefits of holding residential property in a legal entity. There are however more benefits in buying a property in your personal capacity (natural person) than buying residential property in the name of a legal entity:

1. With the payment of capital gains tax (CGT), Trusts (at 26.7%) companies (18.6%) and CCs (18.6%) pay a higher effective rate than individuals (0 – 13%).
2. Individuals who sell their primary residences pay no CGT on the first R2 million net profit. Legal entities don't qualify for this break.
3. People who buy interests in legal entities that own residential property pay transfer duty when they buy those interests - and not only when they buy the property from the entity concerned.

Fortunately until 31 December 2012, the South African Revenue Service (SARS) has offered relief. People who hold residential property in companies, CCs and trusts may transfer it into their own names free of taxes, if they meet certain requirements.

This does not mean the property must be registered in the name of the natural person in the Deeds Office by that date; but the parties must have signed some written agreement to transfer it.

You should seek professional advice from an attorney or other professional adviser to understand if this may be in your interest to do so.

If the transaction is implemented properly, the parties should suffer no transfer duty, CGT or secondary tax on companies. For CGT purposes, the person taking over the property effectively "takes over" the CGT base cost of the residence.

However, the law does not provide for relief from donations tax. So, be careful to make sure donations tax does not arise.

If you think you are a contender for relief then get professional advice, and remember the December 31, 2012 deadline.

This article is posted merely to inform you and does not pretend to be taken as legal or financial advice.