Navigating the complex landscape of property taxes in South Africa is crucial for homeowners, buyers, and investors alike. Understanding these taxes can help you avoid unexpected costs and make informed decisions about your property transactions. 

In this guide, we’ll break down the key property taxes in South Africa, including municipal property rates, transfer duty, capital gains tax, VAT on property, estate duty, and donations tax. Whether you’re purchasing your first home or managing a portfolio of properties, knowing how these taxes work will empower you to plan effectively and minimize your financial liabilities.

Here's an overview of the key property taxes you should be aware of:

1. Municipal property rates

Municipal property rates are levied by local municipalities on the market value of immovable property (land and buildings). These rates fund services provided by the municipality, such as road maintenance, waste management, and emergency services.

How are municipal property rates calculated?

The property rate is calculated as a percentage of the property’s market value, which is determined by the municipality through a property valuation process. The rate percentage varies by municipality and valuation rolls are routinely released by the municipality. Homeowners need to check the valuation rolls when they are released and ensure they follow the procedures in place if they wish to challenge the valuation.

There are certain exemptions in place and in some municipalities pensioners and low-income households could be eligible for discounts.

2. Transfer duty

One of the more well-known property taxes is transfer duty. This is a tax payable when property ownership is transferred from one person to another - meaning when you buy a property. It is paid by the buyer and is based on the purchase price or market value of the property, whichever is higher.

What are the transfer duty rates?

 The transfer duty rates are progressive, meaning they increase as the property value increases. As of the latest update:

• Properties valued up to R1,100,000 are exempt from transfer duty.

• For properties valued between R1,100,001 and R1,512,500, the duty is 3% of the value above R1,100,000.

• For properties valued between R1,512,501 and R2,117,500, the duty is R12,375 plus 6% of the value above R1,512,500.

• For properties valued over R2,117,500, the duty is R46,875 plus 8% of the value above R2,117,500.

Buyers should ensure that they calculate the transfer duty payable when they are saving up for buying a home. 

3. Capital Gains Tax (CGT)

Capital Gains Tax (CGT) comes into play when you are selling your property as it is levied on the profit made from the sale of property. This means that it is taxed on the difference between the selling price and the purchase price. This tax is part of the income tax system and is payable by individuals, companies, and trusts.

Capital Gains Tax is levied on the profit made from transferring ownership of a capital asset, such as a house. However, CGT on the sale of your primary home is only applicable if your profit exceeds R2 million. Capital gains tax applies to all assets disposed of on or after 1 October 2001.

Disposal refers to:

• Sale of an asset

• Donation of an asset

• Expropriation of an asset

• Vesting of an interest in an asset of a trust in a beneficiary

• Death of a person

What are the Capital Gains Tax rates?

For individuals, 40% of the capital gain is included in taxable income and taxed at the individual's marginal tax rate. For companies, 80% of the capital gain is included and taxed at the corporate tax rate.

For more information on Capital Gains Tax read our guide here

4. VAT on Property

Value-added tax (VAT) is payable on the sale of a property if the seller is a VAT vendor. This usually applies to commercial properties or properties sold by developers. Residential properties sold by non-VAT vendors are exempt from VAT, and transfer duty is payable instead.

Can the sale of a property incur both VAT and transfer duty?

No, it can only be one or the other, with the deciding factor being whether or not the seller is registered for VAT. However, the difference between them can hurt your pocket if you’re unprepared and haven’t budgeted for paying either transfer duty or a purchase price inclusive of VAT.

How does VAT affect an agent’s commission?

The seller must inform the real estate agent if they are a registered VAT vendor as their commission must be calculated on the net purchase price and not the gross purchase price.

A buyer must ascertain whether or not the seller is a VAT vendor. If they are, the property purchase price must include VAT.

VAT is always claimable but it still has to be paid over to the Receiver of Revenue first.

What if the buyer is a VAT vendor?

When VAT is applicable and the buyer is a registered VAT vendor, the buyer may claim the VAT that forms part of the purchase price as VAT input from SARS in the form of a credit on their next VAT return. The contract must state the purchase price plus VAT. That wording is very important.

What are the rates on VAT for properties?

The current VAT rate in South Africa is 15%. If VAT is applicable, it is charged on the full selling price of the property.

5. Estate Duty

Estate duty is a tax levied on the estate of a deceased person. If the estate includes property, its value will contribute to the overall estate value for the purpose of calculating estate duty.

Estate Duty is a tax that applies to the total value of a person's property when they pass away. If the person lived in South Africa, this tax covers all their property worldwide. For non-residents, it only applies to property located in South Africa.

When calculating Estate Duty, several deductions are allowed under the law to reduce the estate's total value. After these deductions, a standard amount of R3.5 million is subtracted from the estate’s value. The tax is then charged on what’s left, at a rate of 20% for estates worth up to R30 million and 25% for anything over R30 million.

The determination of Estate Duty can be summarised as follows:

6. Donations Tax

Donations Tax happens when a property is transferred as a donation rather than sold and is payable by the donor.

Donations tax is levied at a flat rate of 20% on the cumulative value of property donated since 1 March 2018 not exceeding R30 million, and at a rate of 25% on the cumulative value since 1 March 2018 exceeding R30 million.

The first R100 000 of property donated in each year by a natural person is exempt from donations tax.

In the case of a taxpayer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R10 000 per annum in total. Dispositions between spouses, South African group companies, and donations to certain public benefit organisations, are exempt from donations tax.