Purchasing property is one of the most important decisions one makes.
Consulting with attorneys is essential as there are various tax and legal implications, depending on whether the property is to be used as your primary residence, your holiday home, or if you will be running a business from the property.
A major consideration is whether to purchase a property in your personal capacity, as a legal entity, or a trust.
Personal Capacity
Pros:
- Property forms part of your estate - estate can transfer the property to an heir/s without the heir/s having to pay transfer duty.
Cons:
- Transfer duty payable upon purchase.
- No asset protection from creditors.
- Depending on the estate value at the time of death, estate liable for CGT, Executor’s Fees, and Estate Duty.
- Vulnerable in the event of financial troubles.
Legal Entity
Pros:
- Affords protection against personal insolvency.
- No transfer duty payable if legal entity is a VAT Vendor. Vat may be reclaimed in certain situations.
Cons:
- Higher rate in transfer duty and capital gains taxes.
- Taxes payable by the members of the entity.
- Company must be registered with the CIPC & must submit audited financials annually.
Trust
Pros:
- Upon the death of a trustee, the property doesn’t get frozen - allows dependents access to asset. Trust is not liable for estate duty, transfer duty, executor’s, conveyancer’s fees CGT in the event of death.
- Lessens value of personal estate, which diminishes estate duty exposure.
Cons:
- Subject to a steeper tax rate, administration and set up costs.
