Transfer Duty vs VAT

Transfer Duty vs VAT: a complete, plain-English guide for South African property deals

Definition of the key phrase: Transfer Duty vs VAT describes the rule-set that determines which tax applies when immovable property is sold in South Africa. In short: transfer duty (under the Transfer Duty Act 40 of 1949) ordinarily applies to the acquisition of property unless the sale is a taxable supply of fixed property by a VAT-registered vendor under the VAT Act 89 of 1991—in which case VAT (standard-rated or zero-rated) replaces transfer duty.

Who pays what, and when

The buyer usually pays transfer duty to SARS before registration, and the conveyancer obtains a SARS transfer duty receipt (or exemption certificate) to lodge with the Deeds Office.
If VAT applies, it is collected by the seller (a VAT vendor) and forms part of the purchase price (either at 15% or at 0% if the sale qualifies as a going concern). In VAT cases, the conveyancer lodges SARS proof that the transaction is subject to VAT, and no transfer duty is payable.

Keyword support: transfer duty vs vat on property South Africa—use this phrase when comparing who pays, how it’s calculated, and the filing steps.

The legal framework you’ll rely on

• Transfer Duty Act 40 of 1949 – imposes duty on the “acquisition of property,” and includes in “property” not only land and real rights, but also shares or member’s interests in residential property companies/CCs. Exemptions include cases where VAT is payable on the supply (commonly cited exemption in s 9).

• VAT Act 89 of 1991 – levies VAT on taxable supplies made by a vendor in the course of an enterprise (s 7 and s 1 definitions). Zero-rating for a going concern appears in s 11(1)(e) when strict requirements are met. Residential letting is an exempt supply (s 12), which explains many duty/VAT outcomes.

• Deeds Registries Act 47 of 1937 – transfer is registered only with the proper SARS receipt/exemption because ownership passes only on registration (s 16).

When transfer duty applies (and VAT does not)

Transfer duty applies where no VAT is payable. Typical scenarios:

• Private seller not registered for VAT sells a dwelling: the buyer pays transfer duty.

• VAT-registered seller disposes of a private asset not used in its enterprise (e.g., a vendor’s private holiday home): transfer duty still applies because the sale isn’t a taxable supply.

• Residential letting business sold as a single property (e.g., a block of flats let to natural persons for dwelling): residential rentals are exempt from VAT, so the sale is not a taxable supply—transfer duty applies (no going-concern zero rate).

• Acquiring a share/member’s interest in a residential property company/CC: transfer duty applies to the acquisition of that interest (the “property” is the underlying residential real estate).

When VAT applies instead of transfer duty

VAT applies where the seller is a VAT vendor, and the property is supplied in the course or furtherance of an enterprise. Common examples:

• Developer sells new residential units: the developer is a vendor, the sale is a taxable supply of fixed property → VAT at 15% applies; transfer duty is not payable.

• Commercial property (e.g., offices or retail) sold by a vendor landlord: VAT applies, usually 15% unless zero-rated as a going concern (see below).

• Mixed-use buildings: the VAT position follows the enterprise use—apportionment or split transactions may be needed.

Developer property and Transfer Duty vs VAT in practice

Keyword target: developer property VAT or transfer duty South Africa

• A registered developer/vendor selling new and unused residential property must generally charge VAT at 15% on the selling price.

• The advertised price for consumers must include VAT—draft the OTP to say “price includes VAT (no transfer duty payable)”.

• Where a developer temporarily lets units before sale, the VAT position can get technical; as a high-level rule, if the developer remains a vendor selling in the course of its development enterprise, VAT (not transfer duty) applies to the sale.

Property sold as a going concern requirements South Africa — zero-rating explained

Keyword target: property sold as a going concern requirements South Africa
A sale of property (often commercial, sometimes mixed-use) can be zero-rated at 0% if all of these conditions are satisfied (see VAT Act s 11(1)(e)):

1. Seller and purchaser are VAT vendors at the time of supply.

2. The property is part of an income-earning enterprise (e.g., a tenanted building) carried on by the seller.

3. The parties agree in writing that the enterprise is sold as a going concern, that the supply is zero-rated, and all necessary assets (including leased property and lease rights) to continue the enterprise are included.

4. The business will be an income-earning going concern on the effective date (e.g., leases remain in place and transfer with the property), and possession/operational control passes on that date.
   Outcome: If any requirement fails, the sale is not zero-rated and usually triggers 15% VAT rather than transfer duty (because the seller is still a vendor making a taxable supply).

Practical drafting: In the OTP/SPA, state “The parties agree the supply is a going concern as contemplated in s 11(1)(e) of the VAT Act and is zero-rated. Both parties warrant vendor status on the effective date; all assets, rights and obligations necessary to carry on the letting enterprise are included; consideration is stated as VAT at 0%.” Add a fallback: “If SARS rules 15% VAT applies, the purchase price will be deemed VAT exclusive and VAT will be added.”

Transfer Duty vs VAT: residential vs commercial (and mixed-use)

Residential rentals are VAT-exempt (s 12 of the VAT Act). A landlord who only lets dwellings is ordinarily not making taxable supplies; the sale of that dwelling or an entire residential letting portfolio is outside the enterprise → transfer duty.
Commercial letting is a taxable enterprise; sale of that income-earning property by a vendor is VATable (15% or 0% going concern).
Mixed-use (e.g., shops below, flats above) requires apportionment, or separation into two transactions, to align with enterprise vs exempt use.

Implications for trusts and companies under Transfer Duty vs VAT

Keyword target: Transfer Duty vs VAT + entity implications

• Same transfer duty table applies to individuals, companies, and trusts (the old “entity surcharge” was removed years ago).

• A VAT-registered purchaser (company or trust) buying a VATable commercial property may claim input VAT if used to make taxable supplies.

• Second-hand goods (fixed property) bought by a vendor from a non-vendor can qualify for a notional input tax credit when certain conditions are met (VAT Act s 16(3)), often used in commercial acquisitions from private owners—coordinate carefully with your tax adviser.

• Buying shares or member’s interests that give the buyer direct/indirect control over residential property typically triggers transfer duty on the interest (Transfer Duty Act definition of “property”), not VAT.

Shares in property-rich companies and CCs: transfer duty or VAT?

SARS treats “residential property companies/CCs” as property for transfer-duty purposes. If you buy shares/member’s interest in such an entity, you generally pay transfer duty (on the fair value), even though no deed of transfer is lodged. This prevents duty leakage via share sales. VAT would apply only if the share sale itself were a taxable supply by a vendor (rare and technical) and the supply is not caught by the property definition—seek specialist advice.

How to calculate transfer duty South Africa (worked examples)

Keyword target: calculate transfer duty South Africa
SARS publishes annual transfer duty brackets. The method is:

1. Find the value (usually the greater of purchase price or fair value).

2. Apply the progressive table to the amount.

3. Add any fixed amount listed for the bracket, plus the percentage on the excess above the bracket floor.

Always check the current SARS table in case thresholds have changed since publication.

Illustrative examples (for a typical recent SARS table)

• Example A: R1 300 000 home from a private seller

  • Duty-free threshold applies up to a certain amount. The next bracket rate applies only to the excess.

  • Result: a modest duty payable (buyers in this range often budget a few tens of thousands of rand).

• Example B: R2 500 000 freehold

  • Apply fixed amount for the previous bracket + percentage on the excess.

  • Result: a mid-five-figure duty.

• Example C: R13 000 000

  • Highest bracket adds a significant fixed amount + percentage on the excess—budget carefully.
    (Note: figures intentionally not hard-coded; confirm the latest SARS brackets and compute precisely using the current table or a SARS calculator.)

Transfer Duty vs VAT: price wording in your offer to purchase

Keyword target: Transfer Duty vs VAT in contracts

• If VAT applies, write: “The price is R X, which includes VAT at 15% (no transfer duty payable).”

• If transfer duty applies, write: “The price is R X (transfer duty, if any, for the purchaser’s account).”

• For a going concern, write: “The parties record the supply is zero-rated under s 11(1)(e).”

• Include a fallback: if SARS rules differently, the price is VAT-exclusive and the purchaser adds VAT, or the parties adjust accordingly.

• Spell out who bears any apportionments for mixed-use, fixtures vs movable assets, and lease cessions.

SARS transfer duty receipt eFiling steps (practical walkthrough)

Keyword target: sars transfer duty receipt eFiling steps
Conveyancers typically file, but buyers/sellers benefit from knowing the process:

1. Log in to SARS eFiling and ensure Transfer Duty is activated for your profile (conveyancers hold special mandates to file TD forms).

2. Initiate a new Transfer Duty case (TD) and capture the Buyer (TD1) and Seller (TD2) details, including tax numbers, ID/registration numbers, addresses, and contact emails.

3. Enter property particulars (Deeds Office property description, title deed number if available, local authority, transaction type).

4. Capture the consideration and transaction date; upload the signed deed of sale and any annexures.

5. System calculates the duty automatically from the current SARS table. If an exemption applies (e.g., VAT vendor sale), select the correct reason and attach supporting docs.

6. Payment: authorise payment via eFiling or arrange EFT against the generated Payment Reference Number (PRN).

7. On clearance, download the Transfer Duty Receipt or Exemption Certificate—the conveyancer must lodge this at the Deeds Office.

8. Keep digital copies. The receipt expires if the transaction parameters change—your conveyancer will regenerate if necessary.

Transfer Duty vs VAT: common pitfalls and risk checks

• Assuming “going concern” zero-rating while one party isn’t a vendor → result is 15% VAT unexpectedly due by the seller (and pricing becomes wrong).

• Residential letting sold as a going concern → no zero-rating because dwelling rentals are VAT-exempt; expect transfer duty.

• Mis-characterising a developer sale as duty-bearing → double-counting risk in pricing and buyer budgets.

• Mixed-use properties without apportionment → over- or under-taxation.

• OTP vague on price/VAT → disputes at lodgement; add clear tax clauses and fallbacks.

• Entity deals (shares/member’s interests) ignoring transfer-duty look-through → unexpected duty liabilities.

Contract checklists to get Transfer Duty vs VAT right

• Identify seller status (VAT vendor? enterprise use?).

• State applicable tax: “VAT at 15% included” or “Transfer duty for purchaser’s account.”

• Going concern clause (if applicable) with warranties of vendor status and 0% rate.

• Apportionment for mixed-use; split assets if helpful.

• Lease cession wording and rent/utility adjustments at transfer.

• Price fallbacks if SARS disagrees.

• SARS eFiling deliverables and timelines.

• Trust/company: board/trustee resolutions; if selling “all or greater part” of assets, Companies Act approvals may be needed (practical governance point).

FAQ: Transfer Duty vs VAT (detailed answers)

1) Does Transfer Duty vs VAT depend on who the seller is?

Yes. If the seller is a VAT vendor and the property is sold in the course of an enterprise, VAT replaces transfer duty. If the seller is not a vendor (or sells a private asset), transfer duty applies.

2) How do I know if a sale is part of an enterprise?

Under the VAT Act, an enterprise includes activities conducted continuously or regularly in South Africa in the furtherance of which goods or services are supplied for consideration (s 1). Commercial letting qualifies; residential letting is exempt (s 12). If the property has been used only for private purposes or exempt supplies, expect transfer duty.

3) What if both VAT and transfer duty seem possible?

The Transfer Duty Act exempts acquisitions where VAT is payable on the supply. So, if VAT applies (even at 0% as a going concern), transfer duty does not. Your task is to correctly identify whether the seller is a vendor selling in the course of an enterprise.

4) How does a developer’s sale work—transfer duty vs VAT?

A developer/vendor selling new residential units supplies them in a taxable enterprise → VAT at 15%, no transfer duty. The OTP should say “price includes VAT (no transfer duty)” to avoid double budgeting.

5) What are the property sold as a going concern requirements South Africa?

Both parties must be VAT vendors; the enterprise (e.g., a tenanted commercial building) must be transferred as a going concern on the effective date; and the agreement must record in writing that the supply is a going concern and zero-rated (VAT Act s 11(1)(e)). Miss a requirement and the default is 15% VAT, not transfer duty.

6) Are residential letting portfolios ever zero-rated as going concerns?

No. Dwelling rentals are an exempt supply, not a taxable enterprise. A sale of that portfolio is not a taxable supply, so transfer duty applies.

7) I’m buying a commercial building from a vendor—can I claim input VAT?

If VAT at 15% is charged and you are a VAT vendor using the building to make taxable supplies, you can normally claim input VAT (subject to the VAT Act’s rules). If it’s zero-rated as a going concern, there is no input to claim because the rate is 0%—but your cash flow benefits.

8) Do trusts and companies pay a different transfer duty rate?

No. The same progressive table applies to natural persons, companies and trusts. Differences arise from VAT status and intended use, not the legal form alone.

9) What about buying shares in a company that owns a house?

SARS treats the acquisition of an interest in a residential property company/CC as the acquisition of property for transfer-duty purposes. You’ll pay transfer duty on the value of the interest, even though the title deed remains in the company’s name.

10) How do I calculate transfer duty South Africa?

Use the current SARS bracket table: apply the fixed amount for your bracket plus the percentage on the excess. Many conveyancers publish calculators, and SARS updates brackets periodically—always check the latest figures.

11) Can a sale be partly VAT and partly transfer duty?

Yes, in mixed-use or split-asset transactions. For example, a building with ground-floor shops (taxable) and upper-floor flats (exempt) might be split into two sales or apportioned—one portion VAT-able, the other duty-bearing.

12) What goes wrong most often in Transfer Duty vs VAT drafting?

Unclear price wording, missing vendor warranties, and no fallback if SARS rules the wrong tax. Fix with: explicit VAT/transfer-duty clause, going-concern wording, and price-adjustment fallback.

13) How fast do we get the SARS transfer duty receipt?

After the TD forms are captured on eFiling and payment clears, you can usually download the receipt (or exemption) for lodgement. Allow for verification delays if data mismatches exist.

14) If a sale was treated as zero-rated going concern but SARS disagrees, who pays the 15% VAT?

The seller is liable to SARS for output VAT; however, contractual clauses typically allow the seller to recover the VAT from the purchaser (via a price-adjustment or VAT-exclusive price clause). Draft this explicitly.

15) Can I avoid transfer duty by getting the seller to register for VAT?

No. Vendor registration requires qualifying enterprise activity and turnover thresholds. Artificial steps to avoid duty risk non-compliance and penalties.

References

Useful Links

• SARS – Transfer Duty: Official hub with the current brackets, guides and FAQs—useful to calculate transfer duty South Africa and download the latest tables.

• SARS – VAT 409: Guide for Fixed Property: SARS’s comprehensive guide on VAT and property, including going-concern examples and practical vendor rules.

• National Treasury/Acts Online: Access to the VAT Act and Transfer Duty Act texts for clause drafting and statutory definitions.

If your query is about how to amend a contract click here.

If you would like to know more about suspension conditions and the effect they have on the termination of contracts click here.

If you would like to know more about specific performance as an alternative to cancellation click here.

If you would like to know more about the effect of estoppel when dealing with cancellations click here.

If you would like to know more about the inter-play between novation and cancellation click here.

If you would like a more in-depth article about the cancellation of contracts click here. 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for errors, omissions, loss, or damage arising from reliance upon any information herein. Don’t hesitate to contact Meyer and Partners Attorneys Incorporated if you require further information or specific and detailed advice. Errors and omissions excepted (E&OE).

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