| The pitfalls of buying property privately |
Penny-wise homebuyers who try to negotiate a private
sale with a seller in the hope of knocking the price down may find
to their regret they have been pound-foolish.
The biggest danger for buyers in private transactions
lurks in the "voetstoots" or as-is clause - because an
untrained eye may easily overlook defects to the property that will
require expensive repairs at a later stage. Agents are generally
more experienced at spotting potential problems, and unlike sellers,
are obliged in terms of their code of conduct to disclose any known
defects to potential buyers.
Indeed, although agents usually act on behalf of
the sellers in property transactions, their code does bind them
to also protect the interests of buyers throughout the transaction
- and thus to ensure that sales contracts are not one-sided or full
of loopholes.
If it is not nailed down in the contract, the buyer
in a private deal will have little recourse, for example, if the
seller absconds with fittings such as blinds, carpets and eye-level
oven - or when there is a gaping hole in the garden where the mature
cycad once towered.
Unwary buyers signing a private sale agreement
may also be in danger of losing their deposit if the sale is cancelled.
Such contracts may contain unrealistic requirements regarding, for
instance, the period allowed to secure a loan or to effect transfer,
which may place the deal - and the deposit - in jeopardy.
Duties that often devolve to an agent, such as
arrangements for cleaning the property before the new owners move
in, upkeep and watering of the garden and arrangements for a full
set of keys, are also often neglected in private sales.
Buyers should thus carefully weigh the perceived
benefits of a private sale. They should ask themselves whether they
really are saving money and whether it is worth running the risks.
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| Could you buy a property tax-free? |
Have you ever wondered how estate agents are able to advertise
some properties as being free of transfer duty? This happens when
the seller - usually a developer - is a registered VAT vendor who
has included Value Added Tax in the purchase price of the property,
because the VAT this seller is obliged to pay across to the Receiver
takes the place of the transfer duty payable on other property purchases.
And the absence of the requirement to pay transfer duty is of course
a major factor in the popularity of many new developments, especially
among cash-strapped first-time buyers - even though the inclusion
of VAT in the purchase price often means that they are getting less
home for their money than if they bought a pre-owned home.
A benefit that is not as much appreciated, however, is that if
the property buyer is also a VAT vendor, he or she may be able to
claim back the VAT or the transfer duty paid on the purchase of
a property.
Tax consultant Paul Nelson warns, though, that "due to the
large amounts being claimed it is more than likely that SARS will
audit the validity of the claim" and will request the following:
- A copy of the sale agreement
- A detailed explanation of what the property will be used for.
VAT or transfer duty can only be claimed when the property is
used for the purposes of making taxable supplies. The use of a
property for residential purposes - whether by the buyer or tenants
- does not qualify. The use of part of the property for business
purposes, such as a doctor's surgery, will probably entitle the
buyer to a partial tax refund, and if the use of the property
changes from being wholly residential to wholly business, the
VAT or duty paid to acquire it may be claimed at that time.
- Proof that the transfer duty has actually been paid. The VAT
Act provides that transfer duty may only be claimed to the extent
that it has actually been paid. Transfer duty receipts should
be available from the transferring attorneys once the transfer
has been registered at the Deeds Office.
- Alternatively, proof that the VAT consideration has actually
been paid. VAT may only be claimed to the extent that the total
purchase price has actually been paid to the seller - by either
the buyer or the bank providing a home loan.
Clearly, the process of making a VAT or transfer duty claim is
not as straightforward as one might think, and buyers would probably
do well to enlist the help of an accountant or tax consultant
if they don't want to get tied up in miles of red tape.
- For more information on this topic, Paul Nelson can be contacted
on (011) 325-4452
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During the past few years, sellers generally haven't
worried too much about "staging" their homes for sale.
The shortage of stock often meant that buyers were just glad to
find a property and more worried about the price than about how
it looked.
But the market is changing, and with more competition
for buyers now, sellers are likely to find once more that it pays
them to spend some money on sprucing up their property before putting
it on show.
And some staging projects - like painting and changing
worn floor coverings - may even pay back a premium on the amount
invested. But even if you only recoup the money you spend on "staging",
it will be worth the effort if it improves your chance of selling
and reduces the amount of time your home is on the market competing
for buyer attention.
Remember that most buyers have difficulty envisioning
how a home will look cleaned up. They will generally retain their
first impression of it and if it looks dirty, tired or neglected
they will quite likely pass on it in favour of a better-kept home
- even if the asking price is higher.
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| Tax 101 for foreign buyers, expats |
Foreigners or expats buying property in SA with
the intention of becoming residents need to consider the tax implications.
For example, says attorney Andrew Duncan, whose
firm specialises in financial compliance, foreigners who retire
here or become permanent residents must realise that they will be
subject to tax on their worldwide income - not just what they earn
in SA.
It is true that if they first donate their assets
abroad to a trust or to children, they will not be subject to tax
on those assets when immigrating to South Africa, but they will
still be taxed on any income they may derive from a trust, no matter
where the trust is "resident".
Similarly, returning SA expats may be exempt from
donations tax on "funds derived from any trade carried on outside
the Republic" and may even keep these funds off-shore without
disclosure, but they will be taxed on any income derived from the
funds.
When it comes to Estate Duty, this is applied to
the deceased estate of anyone resident in South Africa at the time
of their death at the rate of 20 percent on his or her worldwide
assets - with the exception of property acquired overseas before
the person became an SA resident "for the first time"
or received as a donation or inheritance from someone else who at
the time was a non-resident.
It is important to note, says Duncan, that the
Estate Duty exemption does not apply to overseas property that returning
South Africans may have acquired while living abroad. "Obviously,
if a person was born in South Africa he or she has already been
a resident and any overseas property purchase could not be said
to have been made prior to the person becoming an SA resident 'for
the first time'. Thus any property acquired overseas will be subject
to Estate Duty once they again become resident in South Africa.
Donations tax in respect of overseas property is
not payable by foreigners even after they have taken up residence
in SA - again subject to the property having been acquired before
that person became a resident.
Capital Gains Tax, on the other hand, is payable
even by foreign owners of property in SA who are non-residents.
Says Duncan: "There are no exemptions from CGT except the well-known
ones on primary residences. In fact the Income Tax Act will shortly
be amended to provide for conveyancers to retain five percent of
the first R1-million in proceeds to enable the Receiver to obtain
payment of CGT from non-residents selling their property in South
Africa. And if the foreign seller is a company or a trust, the percentages
retained will be even higher - 7,5 percent for companies and 10
percent for trusts.
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