In commercial transactions involving the acquisition of shares in a property-owning company, the tax consequences are not always immediately apparent. Although the underlying immovable property remains registered in the company’s name, the Transfer Duty Act (‘the Act’) treats certain shares and member’s interests as ‘property’ for transfer duty purposes. Accordingly, where a company qualifies as a residential property company, the acquisition of its shares or a member’s interest may attract the payment of transfer duty. Understanding when – and why – this applies is critical to the strategic structuring of a commercial transaction.
When is transfer duty payable on the sale of shares?
Section 2 of the Act imposes transfer duty on the value of property acquired by way of a transaction or otherwise, subject to the exemptions in section 9. Under section 1 of the Act, the definition of ‘property’ expressly includes a share or member’s interest in a residential property company. It also extends to a share or member’s interest in certain holding companies where the holding company and all its subsidiaries would qualify as a residential property company if they were treated as a single entity.
Accordingly, the absence of a transfer of the underlying immovable property does not, on its own, place a share acquisition outside the transfer duty regime.
What is a ‘residential property company’?
Under section 1(1)(b) of the Act, a ‘residential property company’ is broadly defined as a company – other than a REIT – that holds residential property or certain specified contingent rights, where the fair value of that property or right comprises more than 50% of the aggregate fair market value of the relevant assets held by the company on the date on which the interest in the company is acquired. For practical purposes, financial instruments and coins made mainly from gold or platinum are excluded from the asset calculation.
The test is therefore not met merely because a company owns residential property: The value of the qualifying property must exceed 50% of the relevant asset value.
Critically, the Act’s definition of ‘residential property’ includes a dwelling house, holiday home, apartment, or similar abode, and improved or unimproved land zoned for residential use, but excludes, among other things, certain apartment complexes, hotels, guesthouses, and similar structures consisting of five or more units that are held by a person and utilised for renting to five or more persons who are not connected persons. In addition, it excludes REITs and fixed property of a VAT vendor forming part of an enterprise as contemplated in the Value-Added Tax Act.
How is transfer duty calculated?
Crucially, the transfer duty value is not necessarily determined by the consideration stated in the share sale agreement.
In the case of shares or a member’s interest in a residential property company, the statutory definition of ‘fair value’ looks to the portion of the fair market value of the relevant qualifying property attributable to the share or interest acquired. In determining that fair value, the Act requires that any lease agreement and any liability in respect of a loan relating to the relevant residential property be disregarded.
The consideration stated in the transaction documents is nevertheless relevant. Under section 5 of the Act, the value on which transfer duty is imposed is generally the consideration or declared value where no consideration is payable. Where the Commissioner is of the opinion that the consideration payable or declared value is less than the fair value, they may determine the fair value, in which event the greater applicable amount is used in determining the duty.
This distinction is particularly important where a property-owning company has significant financing. Indeed, the existence of a loan relating to the residential property does not, in itself, reduce the statutory fair value of the share or member’s interest for transfer duty purposes.
What if only part of the shares is acquired?
The partial acquisition of shares requires a careful application of the statutory calculation.
Section 2(5) of the Act provides a mechanism for determining transfer duty where an undivided share in property is acquired. SARS’ Transfer Duty Guide specifically addresses the acquisition of shares in a residential property company and explains that, where only part of the shares is acquired, the transfer duty calculation takes into account the proportion of the underlying property attributable to the interest acquired.
For example, where a company holds a residential property as its relevant asset and a purchaser acquires 50% of the shares, the calculation is performed by applying the statutory methodology to the relevant value and the 50% interest acquired.
The precise calculation should, however, be undertaken by applying the statutory provisions to the particular shareholding and transaction structure.
Are there any exemptions?
That a company qualifies as a residential property company does not mean that transfer duty is payable in every transaction. Section 9 of the Act contains various exemptions, including specified asset-for-share, substitutive share-for-share, amalgamation, and liquidation-distribution transactions, provided all statutory requirements are met.
The availability of an exemption must therefore be assessed before concluding that a share acquisition is subject to transfer duty.
What are the current transfer duty rates?
For the 2026/27 tax year, the current monetary values applicable to acquisitions are unchanged from those introduced with effect from 1st April 2025. No transfer duty is payable on the first R1.21 million of value. Progressive rates of 3%, 6%, 8%, 11%, and 13% then apply to the successive value bands, with the 13% rate applying to the portion of the value exceeding R13.31 million. Ordinarily, the applicable rate should be determined by reference to the date on which the acquisition takes place.
Who is liable for transfer duty?
The purchaser or other person acquiring the shares or member’s interest is legally liable for the payment of transfer duty. The parties may agree contractually who will bear the economic cost of the duty, but such an agreement does not alter the statutory liability to SARS. While the contracting parties can agree who bears the economic cost between themselves, it does not change who is legally liable to SARS for the duty. The statutory liability remains with the acquirer.
What about securities transfer tax?
Under the Securities Transfer Tax Act, shares are generally classified as ‘securities’, with securities transfer tax (‘STT’) levied at 0.25% on taxable transfers of securities.
The interaction between STT and transfer duty is important. The Securities Transfer Tax Act contains an exemption for an unlisted security where it constitutes a transaction for the acquisition of property that is subject to transfer duty, per the provisions of the Transfer Duty Act. SARS’s tax guidance accordingly recognises that certain share transactions subject to transfer duty are exempt from STT.
Nevertheless, the applicable STT exemption must be tested against the specific transaction and statutory prerequisites.
Additionally, the VAT position should also be separately considered. While the Act includes an exemption for acquisitions in transaction subject to VAT, the VAT treatment of shares and the underlying property can differ depending on the structure and circumstances.
Conclusion
Transfer duty on the sale of shares in a residential property company can arise even though the underlying immovable property remains registered in the company’s name. In commercial transactions, the transfer duty position should therefore be considered at the structuring and due diligence stage – with particular attention given to the target’s asset composition, property use, financing arrangements, group structure, and the percentage of the company’s interests being acquired.
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