While many people execute Wills to bequeath inheritance (e.g assets) to beneficiaries after they pass on, there are other people who prefer superintending on the transfer of assets to their preferred beneficiaries whilst they are still alive. There is absolutely no right or wrong way of doing this (living or after passing away), the transferor or testator is at liberty to do what they see best according to their circumstances.

Transferring Property to a Family Member

In this article, our propert experts will discuss the factors that one needs to be aware of when transferring property to family members while still alive or through testamentary documents. This is important in that there are Legal, Tax and Financial implications involved and therefore knowing this would put one in an improved position to decide on the option that best suits their goals i.e bequeathing through a will, or transferring whilst still alive.

Purchasing Property from a Family Member

Transfer of a property between family members is usually either by purchase or donation. Where the parties opt to transfer the property by purchase, there must indeed be a Purchase and Sale Agreement involved.

Is there a Bond?

In the event that there is a bond on the property which still subsists, it may become necessary for that bond to be cancelled and the transferee acquire a new bond in their own name. This obviously means a financial assessment must be done by the finance house to determine affordability of the bond by the transferee. This is not always the case, sometimes the parties may prefer to leave the existing bond undisturbed with the transferee reimbursing monthly instalments to the transferor until settlement before the parties can facilitate transfer (we do not advise parties to opt for this option as it is risky).

Donating Property to a Family Member

Where the transferor opts to donate the property to the transferee, a written Gift Deed ought to be entered into to comply with the Alienation of Land Act.  Donations Tax will be applicable in this scenario whereby a consideration of 20% on the value of the property is attached to the transaction. However parties must take note that per annum, donations of R100 000 or less are exempt from Donations Tax, and therefore careful planning must be done wary of the financial implications on this aspect.

Where there is transfer between two parties who are related, SARS requires two separate and independent evaluations to determine the value of the property. Transfer Duty is also applicable in that regard if the transferor is alive.

Bequeathing Property to a Family Member

In the event that the transfer of the property is through bequeathing from the deceased estate, Estate Duty as per the Estate Duty Act 45 of 1955 is applicable. However, only the dutiable portion of the estate will be taxed and so it is not taxed wholesale. There are deductions that must be done first in terms of Section 4 of the Estate Duty Act, further to the rebate of R3 500 000.00, only then can the residue thereof be taxed.

Another tax implication when property is bequeathed is that the Income Tax Act 58 of 1962 provides that death is a Capital Gains Tax event, and therefore it will be applicable on profits attributed to transfer of the property. Further, as per the provisions of the Income Tax Act, from 1 March 2016 a deceased estate must be registered as a tax payer and be taxed accordingly.   

Phoenix Group - Property Experts & Bond Originators

We encourage parties to seek professional guidance when deciding to transfer property to family members so as to carefully navigate through the financial, tax and legal implications prevailing. Phoenix Bonds specialises in bond origination to secure the best deals on your home loan, as well as bridge financing. We commit our work to higher standards so that our clients walk away secure in the services we offer.

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