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Residential Property Company and Transfer Duty Implications

“I have a buyer who wants to purchase my shares in a residential property owning company to avoid paying transfer duty. Can this be done and is this a loophole that SARS has not closed?”

Wishful thinking. Transfer duty is payable on the sale of shares of a residential property owning company, as defined in the Transfer Duty Act. This means that transfer duty will be levied at the same rate as if the property was sold by the entity to the purchaser.

Who is responsible for the transfer duty?

The duty has always been payable within 6 months of the date of transaction by the person who acquired the property. Section 3 of the Transfer Duty Act however states that where the purchaser fails to pay the duty, the public officer of the company and the seller are jointly and severally liable for such duty.

This places an onerous burden on the seller to ensure that the duty is paid or secured before finalisation of the transaction.

The above applies to both companies and close corporations.