Costs and Taxes when Selling your Home
Category Sellers
Costs and Taxes when Selling your Home
When selling your property there are certain costs involved that need to be considered, as well as the possibility of taxes that need to be paid. Sellers may not always be aware of these costs that they could be charged or taxes that may become payable. This is a very important part of the service that your chosen well-educated professional REDZetc estate agent should prepare you for. This discussion is meant to be as comprehensive as possible in a limited space, but if you need clarification, please feel free to consult with Pam Snyman, the principal of REDZetc at pams@redzproperties.co.za or 082 8000 867 / 021 881 3311.
SELLING COSTS AND TAXES are the costs that the seller can expect to pay before transfer of the property can take place. Please note that the costs as described do not all apply to every single purchase, but may apply depending on the particulars of the particular purchase, i.e. property type/mortgage bond to be cancelled/contract terms, etc.
Income Tax or Capital Gains Tax will however apply to each sale where a profit (gain) is made by the seller.
1. Income Tax or Capital Gains Tax (CGT) The very relevant question that needs to be answered is: Is the profit on the sale of a property deemed to be income or capital by SARS?
- When a property is sold, the seller is liable for either Income Tax or CGT and may also be liable for VAT.
- The main (but not always easy) distinction lies in the owner's intention. If the property was purchased with the intention of holding on to the asset as a long-term investment that either generates a regular form of income (letting) or will gain in value over time (capital growth), then SARS regards the proceeds of the sale as being of a capital nature and therefore not subject to income tax, but subject to Capital Gains Tax.
- If the property being sold is the seller's primary residence, there is an exclusion on the first R2million of profit in the event that CGT is payable
- Should the property be purchased as stock with which to trade (speculate), the proceeds are deemed to be subject to Income Tax and not CGT.
2. If the seller has an outstanding mortgage bond on the property, that amount plus a bond cancellation amount will be payable.
3. Should the property be sold with the assistance of an estate agent, the agreed commission amount will be payable by the mandator (usually the seller).
4. All outstanding rates and taxes as well as the pro rata amount payable for a number of months after date of transfer must be paid in order for a rates clearance certificate to be issued by the local municipality. (This can be claimed from the purchaser for the applicable pro rata amount, but the seller remains responsible for the payment). There is also a cost for the certificate.
5. If the sale is of a sectional title unit or a home forming part of an HOA (Home Owner's Association), the seller must ensure that all levies are paid up to ensure that a Body Corporate or HOA levy clearance certificate can be issued.
6. The seller must also provide all the required compliance certificates, i.e. electrical, beetle (some provinces), plumbing (some municipalities) and gas.
So you see, selling your property is not for sissies. But the answer is to be prepared for all eventualities... certain and uncertain. Professional estate agents at REDZetc worth their salt are in a position to assist you to plan your financing effectively without any unpleasant surprises along the way!
Pam Snyman CPRE (NQF Level 7)
(MPhil, Dip Advanced Property Practice, Dip Property Investment & Valuation)
Author: REDZetc
