As a point of departure, let us assume that transfer duty is not applicable to this transaction. Instead, the purchaser is liable to pay VAT on the purchase price.
On 22 February 2018, the Minister of Finance announced that the VAT was to increase from 14% to 15% as from 01 April 2018. From now on, vendors and consumers will be responsible to pay an extra 1% on VAT, including, in some instances, on immovable property.
In terms of the Value Added Tax Act 89 of 1991 (as amended), VAT becomes applicable upon the supply of goods or services. Accordingly, when it comes to immovable property transactions, the time of supply is either the date of registration of transfer of the property into the name of the purchaser, or the date that payment of the purchase price is tendered to the seller (either by way of cash or guarantee), whichever occurs first. The applicable VAT rate on the transaction would then be the rate of VAT applicable at the time of supply.
There is, however, an exception to the rule when residential property is the subject matter of the sale. In the event that a written sale of property to purchase residential property was concluded before 01 April 2018 and both the payment of the purchase price and the registration of the property into the name of the purchaser occurred after such date, the VAT rate at the time of the conclusion of the agreement would be applicable. This is provided that the VAT inclusive purchase price to purchase the residential property was determined and stated in the written sale of property agreement.
Residential property in this regard includes –
- an existing dwelling, together with the land on which it is erected, or any other real rights associated with that property;
- a so-called plot-and-plan deal where the land is bought together with a building package for a dwelling to be erected on the land;
- the construction of a new dwelling by any vendor carrying on a construction business; or
- a share in a share block company which confers a right to or an interest in the use of a dwelling.
Finally, the services rendered by the estate agent also triggers the application of VAT. As alluded to above, the general rule is that VAT will become applicable upon the time of supply. Accordingly, where an estate agent performs services during a period commencing and ending before 1 April 2018, and the estate agent consequently, both contractually and by operation of law, becomes entitled to payment for services rendered, the VAT rate of 14%, regardless when the invoice was issued, would be applicable. It would therefore follow that services rendered before and after 01 April 2018 would require a split on a fair and reasonable basis in relation to the services actually rendered.