DONATION OF IMMOVABLE PROPERTY

DONATION OF IMMOVABLE PROPERTY

I was recently approached by a client looking to donate an immovable property to his fiancé. The property was vacant land, but client had approved building plans and wanted to begin with construction of the dwelling, which would increase the value of the property significantly. This prompted me to look into the implications of such a transaction, and the ways in which a donation could be achieved in the most cost-effective and tax-efficient manner.

A donation is defined as any gratuitous (free or at no charge) disposal of property including any gratuitous waiver or renunciation of a right. If the person (donee) receiving the donation gives anything in return, it is not a donation.

Donations tax is levied at a rate of 20% on the aggregated value of property donated not exceeding R30 million, and at a rate of 25% on the value exceeding R30 million. The person making the donation (donor) is liable to pay donations tax, but if the donor fails to pay the tax within the payment period the donor and donee can be held jointly and severally liable.

There are also a few exemptions in terms of section 56 of the Income Tax Act, which should be noted. They include the following:

1. A donation in terms of a duly registered antenuptial or postnuptial contract to the spouse of the donor;

2. A donation between spouses who are still married to each other;

In both of the above scenarios, the donation will be exempt from donations tax. This seems like a win, but remember that the transfer of the immovable property will still attract transfer duty (where the value of the property exceeds R1 100 000).

So, turning to the facts of my client’s query, it would be best to conclude his Antenuptial Contract (ANC) over the coming months, and to include the donation in the ANC. Then the transfer should be effected as soon as possible thereafter (and before the value has increased by virtue of the build) to minimise the impact of transfer duty on the transaction.

Remember though that there are several factors to keep in mind when making a donation and it is therefore advisable to consult with an expert to discuss the tax and legal implications before such a decision is made.

 

  • On March 1, 2023
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