Author : Homeloans SA
When you want to buy property in South Africa, such as a free standing house, a unit in a complex or a flat, you have various options available to you with reference to the type of ownership. The most common form of ownership is freehold but we also have sectional title, share block and leasehold as forms of ownership available.
Security (protection of the property as an investment) and the tax implications are the two major concerns that should determine in what name you register the property you are buying. The most popular are:
1. Individual names
2. Joint names – could be two or more individuals, married or not married
3. Close corporations
Whether you are single or married you can buy fixed property and register it in only your name or in more than one name. If married out of community of property you can register property and a bond in the name of either or both. When married in community of property, you have no choice – registration must take place in both names. There are also various tribal laws that can influence how property is registered. You must be over the age of 21 to own fixed property.
Benefits of Individual Ownership
1. It is the safest form of ownership.
2. The registration process is straight forward.
3. Transfer duty is less than some of the other types of ownership.
4. Buying property with others can give you the opportunity to get into the property market that you may not be able to afford on your own.
Disadvantages of Individual Ownership
1. Legal action by creditors of any of the owners can force owners to sell the property to cover the debts of one of the parties. (up to the value of his/her share in the property.)
2. Estate duty is high, 25% for estates in excess of R1 million.
3. Capital Gains tax is payable on the sale of a property.
Ownership in the name of a Trust
A trust can be formed by contract in a short period of time, usually less than a month. The parties to a trust are the founder who places the assets under the administration of trustees. The trustees look after the assets for the beneficiaries. There are different forms of trusts available such as business or family. Property is often registered in the name of a family trust. There are strict regulations to guard against people moving their assets into a trust before they file for bankruptcy.
Benefits of a Trust
1. Property bought in name of a trust is separated from the personal estates of the trust holders and therefore there are no tax implications should one of the trust beneficiaries pass away.
2. Personal creditors cannot take action against trust property.
3. If one of the beneficiaries die, the trust is not affected – there is no estate duty payable.
4. Tax is lower than that of companies.
5. Anyone can set up a trust and a trust has a legal personality.
6. It is not affected by divorce.
Ownership in name of a Close Corporation, Company or Informal Body
1. Informal bodies such as churches and associations may own property in South Africa.
2. Close Corporations may buy property on the proviso that Section 40 of the Close Corporations Act is not contravened. This refers to the conditions of financing the purchase. Capitals Gains Tax is payable. Close Corporations can be formed by 1 – 10 natural persons, each member’s interest is registered as a percentage holding, there are no shares are involved.
3. Companies may buy property on the proviso that Section 38 of the Companies Act is not contravened.
This ruling prevents a company from financing the purchase of its own shares.
Benefits of Ownership in name of a Company or Close Corporation
1. A company or a closed corporation is a separate legal entity and therefore not responsible for the debts of the shareholders.
2. No transfer duty is payable.
3. No transfer of property to heirs on death or resignation of shareholders.
4. Cons of company ownership
5. Tax is higher than for individuals.
6. Capital gains tax is applicable when the property is sold.
7. The running of a company is a rather complex process.
Other forms of ownership
Property can be bought in the name of a partnership but the disadvantages have made this form of ownership unpopular. The main disadvantage is that the property forms part of the personal estate of all the partners and therefore is exposed to legal action by the creditors of individual partners.
Any of the categories of owners as described above can apply for loan finance to buy property. Each category will require different documents to be presented to the bank for approval of a loan, be it a home loan or business/commercial property.