Our panel has received an e-mail from a reader who wants to know what the procedure and costs are when selling a share of co-owned, inherited property.
She specifically enquires about transfer costs, deed registration fees and Capital Gains Tax (CGT).
Schalk van der Merwe
Schalk van der Merwe from Rawson Properties Helderberg says if two or more persons co-own a property and the one wants to buy out the other’s share, the transaction is treated like a normal contract of purchase and sale. “This is the case irrespective of whether the parties bought the property together, or whether they inherited it or received it as a donation.”
In the reader’s situation, says Van der Merwe, it will be necessary for the co-owners to determine the fair market value of the property on which they will base the purchase price of the selling party’s share. “The fair market value can be determined by obtaining valuations from estate agents, or by using an average price based on recent sales of similar properties in the area.”
Van der Merwe says it is advisable to use the fair market value as the basis for the purchase price as the South African Revenue Service (Sars) will require a valuation when the transaction is submitted for the payment of transfer duty. “The transfer duty is calculated on the value of the whole property and thereafter multiplied by the percentage of the share being purchased.”
If the purchase price is less than the fair market value, Sars may nevertheless calculate the transfer duty on the higher amount (fair market value), according to Van der Merwe.
Lucille Geldenhuys
Lucille Geldenhuys from Lucille Geldenhuys Attorneys in Stellenbosch says it is also possible that the difference between the fair market value and the purchase price may be regarded by Sars as a donation, and as such it may attract donations tax. “It is therefore advisable that the parties obtain professional advice regarding the tax implications of the transaction so that it can be structured correctly.”
Geldenhuys says once the purchase price has been determined, the parties may instruct an attorney to draw up a sale agreement. “The attorney will also be able to advise the party of the tax consequences flowing from the transaction, including the CGT that the selling party will have to pay in respect of his or her share that is being sold.”
If the parties jointly registered a bond over the property, it will either have to be settled in full and cancelled simultaneously with the transfer of the property, or the buying party will have to apply to the bank to take over the bond, according to Geldenhuys. “This means that the buying party will be substituted as the sole debtor in respect of the loan and the mortgage bond.
“If the bond is cancelled, each party will be liable for his or her share of the outstanding balance and the buying party will most often then register a new bond to finance the buyout.”
Geldenhuys says as far as the conveyancing process and costs are concerned, the normal process of transfer of ownership will be followed and the standard transfer and bond registration fees will be applicable.
Send your property related questions to coetzee[at]fullstopcom.com.
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