• If the seller is a VAT vendor, and the property is an asset in the VAT registered enterprise or input credits were claimed, it is likely that VAT should be paid by the seller to  SARS on the sale.  (There are exceptions.  Take tax advice.)
  • The agreement should state clearly if VAT is included in the price of the property or will be added to the price.
  • Saying the price “excludes VAT” is also not very useful. It does not indicate clearly that VAT is or is not payable.  Rather record purchase price “plus VAT” or “inclusive of VAT”.  That makes it perfectly clear to both parties.
  • The VAT clause is often separated from the purchase price clause in agreements of sale, which can lead to this question being overlooked.
  • If the agreement is silent on VAT, and VAT is payable by the seller, it is included in the purchase price, and this can be a nasty surprise for the seller.
  • This can happen, for example, where a professional person registered for VAT in his or her personal capacity, (such as a doctor) sells a private home believing this to fall outside the VAT enterprise, but then finds that VAT input credits were claimed from SARS on the property.  VAT could be levied by SARS on the full purchase price.
  • If the seller must pay VAT on the purchase price to SARS, it will be either at the full VAT rate (currently 14%) or at zero percent for sales of “going concerns”, but more on that later.
  • If the seller is to pay VAT to SARS on the sale, the purchaser is exempt from paying transfer duty, so that fact should be considered by both parties in the price negotiation.
  • What if SARS has a different view to what the parties have agreed is their understanding?  The agreement could state that the purchaser will pay VAT or transfer duty on the purchase price, whichever applies.  This is a common provision in agreements of sale and is not a bad solution, provided the buyer is prepared to accept the uncertainty on the amount payable.
  • This is a practical solution particularly where the buyer is a VAT vendor and will be able to reclaim from SARS the VAT or transfer duty payable as an input credit.
  • It is in the best interests of both the buyer and the seller to consider the question of VAT or transfer duty in advance, and try to establish before signing the agreement which form of tax will be payable and by whom.
  • If VAT is not payable on the sale by the seller, usually the purchaser must pay transfer duty.
  • This is so unless the transaction is exempt from transfer duty in terms of the Transfer Duty Act.
  • These exemptions apply only under special circumstances such as transfers in terms of a will or divorce order, and not ordinary commercial sales.
  • See also the discussion under the headings of “transfer costs” and “going concern sales”.
  • VAT and transfer duty are not similar amounts.  VAT is 14% (at the time of publication) and transfer duty is on a sliding scale based on the higher of value or purchase price as follows.
  • For a quick summary of transfer duty payable on the higher of the purchase price or the value of the property, see below (accurate as at August 2015.  Check for any amendments to the rate since then.)
  Rand value or price transfer duty
 0 – 750 000  0%
750 001 – 1 250 000 ​ 3% on the value above 750 000
 1 250 001 – 1 750 000 ​ 15 000 + 6% of the value above 1 250 000
1 750 001 – 2 250 000 ​ 45 000 + 8% of the amount above 1 750 000
​2 250 001 and above ​85 000 + 11% of the amount above 2 250 000