Legal advice regarding the purchasing of property owning companies, CCs or Trusts is often required.
Transactions of this nature involve purchasing a company, close corporation or trust that owns immovable property, thereby ultimately purchasing the property itself.
Up until 2001, buying property through a company in South Africa was a cost effective and popular method used to purchase property.
It is completely legal and possible to purchase a trust and in turn acquire ownership of the property already registered in the name of the trust.
The names of the beneficiaries and trustees must be amended according to those nominated by the purchaser as part of a purchasing agreement. This purchasing agreement involves the payment of a consideration which is ultimately the purchase price.
Once the Masters office registers these changes and the consideration has been paid, ownership of the trust is effectively changed which results in the property being acquired.
Purchasing of a property owning trust requires the payment of the transfer duty to the South African Revenue of Service in accordance with the Transfer Duty Act of South Africa.
Transfer duty will be calculated according to the property’s market value. The need to pay transfer duty means that there is no real benefit of obtaining property through purchasing a trust.
An agreement is entered into for the purchasing of shares in a property owning company. The agreement must include specific warranties.
Due to the following factors, a standard agreement for the sale of property cannot be used:
Capital gains tax when purchasing shares in a property owning company has been in implementation since 2001.
Capital gains tax is calculated based on the difference between the initial purchase price of the company and not its current selling price and is at a standard rate of 18.6%.
The liability of CGT becomes that of the purchaser.
Transfer duty is applicable when purchasing shares in a company which owns residential property. The standard rate of transfer duty payable is based on the market value of the property.
This does not apply to companies which own commercial or agricultural properties.
When purchasing shares, as the new owner of the company, the purchaser undertakes any and all liabilities of the company from the date of sale.
Before the act of 2001, transfer duty and capital gains tax were not applicable. Exemption from transfer duty was considered sufficient compensation for taking on the risk associated with the company’s liabilities.
Prior to the date of sale of the company, warranties against it’s liabilities were provided as a way to protect the seller.
A standard rate of 0.25% of the value of the shares sold is payable by the purchaser.
In conclusion, there are better methods to acquire property than by purchasing of property owning companies, CCs or trusts.
It is less of a risk and more affordable to form a new company which can then make a direct purchase of the property from the existing owner or entity.
Contact Van Deventer & Van Deventer Incorporated for high quality, professional legal advice regarding the purchasing of property owning companies & other matters of property law in South Africa.
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