If you are considering gifting property to a family member you must do your research to fully understand the financial implications and hidden costs.
- Do your research before deciding to gift property to a family member.
- Look at all the cost implications of transferring a property to a family member as opposed to bequeathing it.
- If there is a home loan attached to the property you want to gift, the bond will have to be cancelled and another one applied for by the new owner.
There are practical advantages for those thinking about transferring their property to their family instead of bequeathing it to them after their death, but there are legal, tax and cost implications to consider.
The transfer of property between family members in South Africa: What does it entail?
The transfer of the property is usually in the form of a donation (a gift) or the sale of the property to the child. A written contract must be entered into between the parent and child, or family members.
Is it a better option tax-wise to gift property to a family member rather than bequeath it?
SARS treats gifts or donations differently to bequests/ inheritances, but there are also legal and other cost considerations involved.
The following additional costs should be carefully considered, and the advice of an expert obtained, as these costs will be paid in the short-term (when the donation is made) as opposed to being bequeathed upon one’s death.
If the property is donated to the child or family member, donations tax of 20% is payable by the parent or donor to SARS on the value of the property.
Every person is entitled to an annual exemption of R100,000 in respect of donations tax. The first R100,000 of the value of the property will therefore be exempt from donations tax and the balance will attract donations tax. That could be a high cost incurred in the short-term.
The above tax implications should be carefully compared to the estate duty implications if the property should be bequeathed to the child or family member (rather than donated).
On death, as the property was not donated, the property will be an asset in the deceased’s estate. Depending on the estate’s value (including taking into account the rebate amount of R3,500,000 – Feb 2019 Budget – that is tax free), you could have estate duty…
Sufficient cash must also be available in the deceased’s estate to cover the transfer costs. Estate planning advice should be obtained. You may have executor’s fees on the value of the property.
Bequests of immovable property are exempt from transfer duty. In contrast, if the property is transferred during the lifetime of the parent, the child who acquires the property will be liable for transfer duty on the value of the property above R1,000,000 (Feb 2020 Budget).
SARS requires two independent valuations of the property if the parties to a transaction are related. In the case of both the donation and bequest, transfer fees will be payable to the transferring attorneys.
Other costs: Acquiring a new bond
If there is a bond over the property, the outstanding balance of the bond would have to be cancelled. Depending on the financial arrangements between the parties, the recipient of the property may be required to obtain a bond in his or her name in respect of the property before the transfer will be permitted.
Attorney’s fees would be payable in respect of the bond cancellation, bond registration and the transfer of the property according to prescribed rates. It is recommended that quotations of all costs be obtained to ensure that there are no unexpected expenses.
How much can you afford to spend on the new bond?
Further to the above, if a family member wishes to gift their immovable property and it is still bonded, the recipient will need to establish whether they can afford the home loan. The donation is of the property value, even if there is a bond. South Africa’s largest home loan comparison service, ooba home loans, provides a free, online prequalification tool, the ooba Bond Indicator, which can help you determine what you can afford.
Whether you choose to bequeath your home as a gift, or keep it as part of your estate, it forms a powerful asset that benefits the whole family. If you’re interested in purchasing such an asset, ooba home loans offers a range of tools that make the process easier. Start with their home loan calculators; then use the ooba Bond Indicator to get prequalified and determine what you can afford. Finally, when you’re ready, you can apply for a home loan.