Capital Gains Tax On the Sale of Property

By Tevait Feanle •  Updated: 01/23/24 •  5 min read

When we hear the word ‘tax’ we tend to think of the most common types of tax, like income tax. However, there are also tax implications when you buy or sell an asset (like buildings or property). This is usually a one-time, but rather large, transfer of value between parties. The tax these transactions attract is known as Capital Gains

- ADVERTISEMENT -
Tax (CGT). It is a complex and sometimes intimidating field- but don’t worry! We are here with some key basics to help you better understand Capital Gains Tax and how it affects the sale of properties.

What is the Capital Gains Tax on Selling Property in South Africa?

Capital Gains Tax is a tax levied on the profit gained from the sale of an asset. While this doesn’t only mean property, the sale of property in South Africa is the most common way CGT is triggered. When you sell a property and realize a capital gain (i.e. make money on the sale instead of a loss), a portion of that gain becomes subject to tax. Losses do not attract CGT, although some types of capital loss can be ring-fenced or rolled into other areas of taxation.

To put this differently, it is common for pricey assets like property to rise in value over time. SARS does not expect you to incrementally declare that rise in their value on every tax return, especially as prices and markets are volatile and change swiftly. Instead, when you make ‘real money’ on the asset by selling it for a better price than you paid, instead of holding a notional value on a balance sheet, you will pay the tax on that value increase as a one-time CGT payment.

Who Pays Capital Gains Tax on Property Sales?

The responsibility for paying Capital Gains Tax on property sales falls on the property owner, be it an individual or a legal entity like a PTY LTD or trust. This includes residents, non-residents, companies, trusts, and other entities that derive capital gains from the disposal of South African property. The tax is calculated based on the net capital gain, which is the difference between the selling price of the property and its base cost. 

What is the Current Capital Gains Tax in South Africa?

The base Capital Gains Tax rate in South Africa is currently 18%. This is for individuals and special trusts. There are higher rates (of 21.6% and 36%) for companies and other trusts respectively. These rates are adjusted from time to time but do not typically rise annually like income tax rates. This rate is applied to the net capital gain, and property sellers should keep this rate in mind to accurately estimate their tax liability. 

- ADVERTISEMENT -

How Do I Avoid Capital Gains Tax in South Africa?

It is not possible to entirely avoid all Capital Gains Tax on property sales. However, some legitimate strategies and exemptions can help minimize the tax liability as much as possible. This includes:

Additionally, if you are selling a small business valued at under R10 million, and are over 55 years of age, there is a R1.8 million exclusion you can use that can be applied towards the buildings where relevant.

How Do I Calculate My Capital Gains?

Calculating Capital Gains requires you to know both the proceeds from the sale and the base cost of the property. The formula for calculating Capital Gains is as follows:

Capital Gain=Selling Price−(Base Cost of the property + Incidental Costs)

Where the ‘base cost’ is the original purchase price with additional acquisition costs (like transfer duties and legal fees), and the cost of any improvements made to the property. ‘Incidental costs’ are those you will incur during the sale, such as legal fees, transfer duties, and estate agent commissions.

Once you’ve calculated the capital gain, you can then apply any applicable exclusions, deductions, or reliefs to determine the net capital gain. This is the section that will be taxed.

Capital Gains Tax is a sometimes confusing tax type that can be very difficult for the average person to understand. Hopefully, this article has helped you come to grips with the basics, so you can feel more confident about CGT and your property sale. 

- ADVERTISEMENT -

Keep Reading

How Tax Rebate Is Calculated

How Tax Rebate Is Calculated

How Tax Rebate Is Calculated. In this extensive handbook, we will explore the realm of tax rebates in South Africa.

What Is Income Tax Return Online Rectification

What Is Income Tax Return Online Rectification

In this article, you'll explore income tax return online rectification in South Africa: duration, status check, requirements, and the process when requesting correction from SARS.

Why is the Pension Fund in South Africa an Allowable Tax Deduction?

Why is the Pension Fund in South Africa an Allowable Tax Deduction?

In this article, we'll delve into the specifics of why pension funds are an allowable tax deduction in South Africa

How to Activate Tax Types on eFiling

How to Activate Tax Types on eFiling

This comprehensive guide navigates through the intricacies of tax types, explaining how to activate them on the eFiling platform

How to Avoid Lottery Winning Gift Tax

How to Avoid Lottery Winning Gift Tax

What Expenses Are Tax Deductible In South Africa?

What Expenses Are Tax Deductible In South Africa?

What expenses are tax deductible in South Afric. Read on to learn the expenses that are tax deductible in South Africa.   

How to Complete the Income Tax Return (ITR14) 

How to Complete the Income Tax Return (ITR14) 

To keep things neat, tidy, and as simple as possible, tax return for companies vs individuals. The company-focused income tax return uses code ITR14.

Taxes on Capital Gains

Taxes on Capital Gains

While most only encounter CGT a few times in our lives, it can be a hefty tax burden, and it is critical to understand what it does

What Is SARS Tax Credit?

What Is SARS Tax Credit?

These include the property rates tax credit, the investment tax credit, the tax credit for medical scheme fees, and the credit for economic development.

How Many Times Can I Revise Tax Return?

How Many Times Can I Revise Tax Return?

so today we’ve compiled this guide to help, exploring everything you need to know about tax return revisions and SARS.

What Are the Liabilities on a Tax Return?

What Are the Liabilities on a Tax Return?

Today we look at exactly what that ‘liabilities’ section means for you, what belongs there, and how to correctly assess and create your balance sheet for income tax purposes.

How to Submit Provisional Tax to SARS

How to Submit Provisional Tax to SARS

This article will guide you through submitting your provisional tax return to SARS. 

Difference Between Direct Tax and Indirect Tax

Difference Between Direct Tax and Indirect Tax

What Is the Difference Between Direct Tax and Indirect Tax? Read on to learn the difference between direct tax and indirect tax. 

What Happens to Your South African Taxes When You Die?

What Happens to Your South African Taxes When You Die?

This guide delves into the intricacies of what unfolds in the realm of taxes when one passes away in South Africa

Stamp Duty And Registration Charges In South Africa

Stamp Duty And Registration Charges In South Africa

The article explores the topic of registration fees and stamp duty. Learn about them, their determination, and the total amount required to transfer property ownership