House-in-your-own-name-tax break

There are capital gains tax (CGT) advantages to an individual holding his primary residence in his own name.  This is as opposed to holding it through a trust or a company.  When CGT was introduced, there was a grace period during which primary residences held by companies (including close corporations) or trusts could be transferred to the relevant individuals, without a tax cost.  The Taxation Laws Amendment Act, 2009 now introduces a similar grace period.

•disposals for up to R2 million proceeds are disregarded for CGT purposes;
•if a disposal is for more than R2 million proceeds, the first R1.5 million of the resulting capital gain is exempt from CGT;
•the effective CGT rate for individuals is the lowest possible, being 10% if the individual is at the maximum marginal rate;
•individuals have an annual CGT exclusion (currently R17 500).

The grace period introduced by the Taxation Laws Amendment Act, 2009 allows for primary residences held by companies or trusts could be transferred to the relevant individuals, without incurring any CGT or transfer duty.  The individual will take over the tax history of the primary residence.  This means that he will be treated as having acquired the primary residence on the same date as the company or trust, for the same cost, to have incurred associated expenditure and to have obtained any CGT valuations as at 1 October 2001.  The individual will then realise the full capital gain when he eventually disposes of the primary residence.

In order to qualify for the grace period, various requirements must be met.  The individual must have held all of the shares or member’s interest in the company, since 11 February 2009, alone or with his spouse.  In the case of a trust, the individual must have disposed of the primary residence to the trust or financed all of the related expenditure.  The individual must have lived in the property, as his primary residence, since 11 February 2009, alone or with his spouse.  The grace period runs until 31 December 2011.

This release has been circulated on behalf of Garlicke & Bousfield Inc.

The article was written by Tim Desmond, Director - Tax and Commercial Departments

For more information contact him on (031) 570 5401 or 083 637 1852
Circulated by Shirley Williams Communications telephone 083 303 1663