In the property context, the proposed and much-discussed VAT rate increase of 0.5%, which will potentially take effect on 1st May 2025, raises three key questions: When is VAT payable in property sales, how does a VAT increase impact property transactions, and which rate – 15% or 15.5% – is applicable when the sale and transfer of property occur in different VAT periods?
As we reported shortly after the conclusion of the National Budget Speech, government has proposed a 0.5% VAT increase. Although Parliament has yet to approve the proposal, it is essential to provide clarity on three important VAT-related questions concerning property transactions to mitigate any confusion.
When is VAT payable in property sales?
In transactions involving the sale of property, either VAT – an indirect tax levied on the consumption of goods and services – or transfer duty is payable. According to section 64(1) of the Value-Added Tax Act (‘VAT Act’), in instances where the seller is a registered VAT vendor and the property transaction occurs in the course and furtherance of the seller’s enterprise, VAT will be payable by the seller to SARS.
Accordingly, if the seller is not a registered VAT vendor, or if the property does not form part of their enterprise, transfer duty will instead be payable to SARS by the purchaser (or, as otherwise agreed), in line with current transfer duty rates.
What impact does a VAT increase have on property sales?
Most property transfers necessitate the payment of transfer duty by the transferee, unless an express exemption applies. While the direct cost of purchasing property may not increase with a VAT adjustment, the associated transactional costs, including conveyancing fees, will marginally increase with a VAT hike.
In development sales, VAT is included in the purchase price of new builds sold by VAT-registered developers. As such, a VAT increase slightly raises the overall cost of purchasing such properties.
What if the sale and registration of property occur in different VAT periods?
Pursuant to the proposed VAT increase, a crucial question arises: If an agreement of sale was signed prior to 1st May 2025, but registration of transfer occurs thereafter, which VAT rate – 15% or 15.5% – will apply to the transaction?
According to section 67A(4) of the VAT Act, in instances where an agreement of sale is concluded in respect of residential property before the date on which a VAT increase takes effect, the applicable VAT rate for the transfer is the one in effect at the date of signature, provided the agreement expressly states the purchase price and both parties duly signed it. Consequently, if the sale was concluded on 30th April 2025, but registration occurs in July, VAT is payable at a rate of 15%.
While VAT may change, STBB remains committed to meeting your property needs and delivering excellent client service.
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