A property tax or millage rate is an ad valorem tax on the value of a property, usually levied on real estate. The tax is levied by the governing authority of the jurisdiction in which the property is located. This can be a national government, a federated state, a county, a geographical region or a municipality.
Property tax has been in existence for at least three millennia. It is common throughout the world and has often been the subject of debate. The tax base may be the land only or the land and the buildings.
Which property taxes should one know in South Africa?
Any property acquired in a sales transaction is subject to transfer duty. The South African tax rates for transfer duty are progressive at the following rates:
0 – R900,000 – 0%
R900,001 – R1,250,000 – 3% of the value above R1 000 000
R1,250,001 – R1,750,000 -R10,500 + 6% of the value above R1,250,000
R1,750,001 – R2,250,000 – R40,500 + 8% of the value above R 1,750,000
R2,250,001 – R10,000,000 – R80 500 +11% of the value above R2 250 000
R10 000 001 and above – R933 000 + 13% of the value exceeding R10 000 000
Transfer duty is payable by the person acquiring the property, and should be paid within six months from the date of acquisition to avoid incurring interest.
Tax on rental income
If you receive income from a rental property, you should declare this on your income tax. Though you will be taxed on this income, be sure to declare your expenses because certain ones – like agent fees, some insurance, and advertising – can be deducted.
Donations tax is a South African property tax payable on the value of any property disposed of as a donation. This is set at 20% of the property value up to R30 million, and 25% on properties valued at more. The tax is payable by the donor. It needs to be paid by the end of the month following the month in which the donation was made.
Capital gains tax
Capital gains tax is not a separate tax in South Africa but instead forms a part of income tax. Thus, any profit when selling an asset is subject to the same rates as South African income tax.
Inheritance tax in South Africa
Estate duty is the name for inheritance tax in South Africa, which is a property tax payable on all estates with a net worth in excess of R3,500,000. The tax rate in South Africa for estate duty is 20% of properties worth up to R30 million and is 25% of properties worth more than this. The South African government has agreements to avoid double death duties with Botswana, Lesotho, Swaziland, Sweden, the United Kingdom, the United States, and Zimbabwe.
Those who retire in South Africa pay estate duty on property, wherever it is, in the event of their death. Properties located outside of South Africa are exempt if they were acquired prior to residency or were inherited from or donated by someone who is not a South African resident.
What type of inheritance tax on home should one know in South Africa?
Inheritance tax is a tax placed on a person who inherits assets through a person who has died. In South Africa, inheritance tax is only applied to property as estate duty, or money or property that’s left to someone by the deceased as a donation or gift. Assets in an estate can include things like immovable property (a house), movable property (a car, furniture, or heirlooms), cash, or shares in a company. An estate is comprised of all remaining assets after all of the estate’s debts are paid off.
Who has to pay inheritance tax in South Africa?
You don't have to pay tax on what you inherit as it's not included in your gross income, however, the estate of a deceased is subject to a 20% tax called estate duty. This means that tax is paid on the estate before it goes to the beneficiary or beneficiaries, and the beneficiaries don't have to pay tax anymore on what they receive. Normally the executor of the estate is responsible for paying the estate duty. Any donations or gifts that you receive before someone passes away are treated differently taxwise. There are also monetary limits and exemptions to the rules.
Non-resident inheritance tax
Non-resident and resident foreigners who inherit an estate in South Africa pay estate duty at the same rate. However, residents will pay estate duty on their combined worldwide assets, while non-residents will only be taxed on their South African property. Non-residents are exempt from paying donations tax. You may also be subject to inheritance laws in your home country, so you should check with a local attorney or government bureau.
What is estate duty?
Estate duty is levied on the worldwide property and deemed property of a natural person who is ordinarily a resident in South Africa and on South African property of non-residents. Various deductions under section 4 of the Estate Duty Act, 1955 are allowed to determine the net value of the estate. An abatement of R3.5 million is allowed against the net value of the estate to determine the dutiable value of the estate. The estate duty is levied on the dutiable value of an estate at a rate of 20% on the first R30 million and at a rate of 25% on the dutiable value of the estate above R30 million.
When is estate duty due?
Estate duty is due within 1 year of date of death or 30 days from date of assessment, if assessment is issued within 1 year of date of death. Currently, interest is levied at 6% p.a. on late payments.
Who is responsible for collecting and how does one declare estate duty?
SARS is responsible for collecting the estate duty. Even if estate duty is not payable you have to inform SARS that the person is deceased. An executor must notify SARS of the death by sending an email to SARS.
The executor will calculate the estate duty payable when preparing the liquidation and distribution account. The executor must complete the Estate Duty Return (Rev267) and must submit the return, together with the liquidation and distribution account to the Master of the High Court as well as to SARS.
The above in a nutshell is what’s involved when it comes to tax on an inherited home sale.