Amid extensive political debate over the proposed VAT hike, the Fiscal Framework for the 2025/26 National Budget was narrowly passed by Parliament last week. With the staggered VAT rate increase of 0.5% set to take effect on 1st May 2025, we’ve received numerous VAT-related enquiries applicable to property transactions. In this special STBB Newsflash, we address four key questions, in line with a clarifying communique recently issued by SARS.
The sale of residential property
I signed a sale agreement to purchase residential property on 2nd March 2025, but payment of the purchase price and registration of transfer is scheduled for on or after 1st May 2025. Which rate applies to my transaction?
In this instance, VAT will be payable at the rate that applied prior to 1st May 2025 – 15% – provided certain conditions are met, namely:
- A written agreement to purchase a dwelling was duly executed, irrespective of whether it contains suspensive or resolutive conditions;
- The agreement expressly stipulates the VAT-inclusive purchase price; and
- Both payment of the purchase price and registration will occur on or after 1st May 2025.
‘Residential property’ includes an existing dwelling, along with the land on which it is situated or any other real rights associated with the property, the construction of a new dwelling by a registered VAT vendor operating a construction business, and plot-and-plan transactions.
If one or more of the aforementioned requirements are not satisfied, VAT is payable at a rate of 15.5%.
Naturally, if payment and registration occur prior to 1st May 2025, VAT is payable at the rate of 15%.
The sale of commercial property
I sold a commercial property and issued a tax invoice to the purchaser on 17th February 2025. The transfer will be registered in the Deeds Registry on 2nd May 2025, with payment being made on the same date. At which rate is VAT charged?
Unlike the sale of residential property, no special rules apply. Instead, the time of supply determines the applicable VAT rate. In this scenario, VAT is charged at 15.5%. Importantly, it is immaterial when the sale agreement was concluded or whether an invoice was issued prior to 1st May 2025.
Estate agents’ commission
I concluded a deal on 4th April 2025 and registration of transfer is expected to take place in mid-May. Which VAT rate applies to my commission?
VAT on an estate agent’s commission is typically subject to the general VAT rules, not specialised property-related VAT rules. Typically, commission is payable on registration of transfer. Accordingly, if services are rendered and concluded prior to 1st May 2025, VAT at the rate of 15% will apply.
However, a trickier scenario arises where services rendered span both VAT periods. In transactions where an estate agent began performing services connected to the property transaction before 1st May 2025, and the services are concluded on or after this date, a fair and reasonable apportionment is required. As such, the value of the services rendered before 1st May will be subject to VAT at 15% while VAT at the rate of 15.5% will be payable on the value of the services performed on or after 1st May 2025.
Municipal rates and services
From which date will the new VAT rate of 15.5% be charged on municipal rates and services?
Crucially, property rates are not affected by the increase as these charges are subject to VAT at a rate of 0%. It is, however, worth noting that when landlords recover this charge from tenants renting commercial property, VAT applies at the standard rate, unless the lease agreement specifies otherwise.
Generally, invoices for municipal services are issued after the municipality has rendered such services. Accordingly, if an invoice for services rendered during April 2025 is issued on or after 1st May 2025, VAT will be charged at 15%. Conversely, VAT on services rendered on or after 1st May 2025 must be charged at a rate of 15.5%.
Last week, the Democratic Alliance filed an urgent court application, which challenges the process adopted by Parliament’s Finance Committee on procedural grounds. Additionally, the Applicant seeks to have section 7(4) of the Value-Added Tax Act declared unconstitutional on the basis that it empowers the Minister of Finance to introduce tax increases without full parliamentary approval. The application is expected to be heard in the Western Cape High Court on 22nd April 2025.
For further information or legal assistance, contact us at info@stbb.co.za to speak with a property lawyer.
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