The tax implications of selling your South African property as a non-resident

Thinking of selling your property back in South Africa? There are a few things you need to consider beforehand as an expat, especially if you’re now considered a non-resident for tax purposes.

 

Non-resident selling property in South Africa

 

Selling your South African immovable property

While it’s definitely a buyer’s market, the demand for homes priced lower than R2 million is expected to gain momentum in 2021 if interest rates remain as low as they currently are. This means that sellers won’t have a hard time finding buyers, if their properties are realistically priced.

Where a property is sold for more than R2 million and the seller is a non-resident, the transferring conveyancers are legally obliged to withhold the Capital Gains Tax that is owed by the seller on the proceeds of the sale. This Capital Gains Tax must be paid to the South African Revenue Service in terms of section 35A of the Income Tax Act in order for the property transfer to be successfully registered.

 

So who is a non-resident when it comes to selling property in SA?

A “non-resident” is someone who is not ordinarily resident in South Africa, nor do they meet the requirements of the “physical presence test”. These are two tests contained in the Income Tax Act that are used by the Revenue Service in order to determine whether or not an individual is a resident for tax purposes.

In order to meet the requirements of the physical presence test (and accordingly be classified as a tax resident) the person needs to have been physically present in South Africa for at least:

• A total of 91 days in the year of assessment plus 91 days in total in each of the previous 5 years of assessment; and
• A total of 915 days in the previous 5 years of assessment.

Read more about determining your tax residency status here.

 

What’s the big deal about selling property in SA as a non-resident?

As you’ve no doubt guessed it, the distinction between resident and non-resident seller is important in the sale of a South African property for Capital Gains Tax purposes. This is because South African residents are expected to pay Capital Gains Tax on the sale of any capital asset, while non-residents will only pay this tax on the sale of  an immovable property situated in South Africa.

If you have already ceased to be a tax resident in South Africa some time ago, you might recall that a Capital Gains Tax liability became payable to SARS because you were deemed to have sold off all your worldwide and South African assets, with the exception of your immovable property located in South Africa. Your property was excluded from Capital Gains Tax at this point because SARS still has two other opportunities in which to tax you on your property – either at sale or through an estate duty on your death.

As a result, you are obliged to disclose to the estate agent (and potential buyers) in the sale of your property in South Africa that you are a non-resident seller so that they may proceed accordingly.

 

What are the implications of selling property in South Africa as a non-resident?

If you are considered a non-resident for tax purposes the sale of your property will be subject to a potential withholdings tax in South Africa. Withholding tax is charged on the sale price of your immovable property if that price is higher than R2 million. As a result, if the sale price is higher, then the conveyancing attorney will need to withhold the appropriate amount of tax which must be paid directly to SARS. Only once this has happened can the transfer be registered in order for you to make money off the sale. 

 

The amount of withholding tax you will be charged on an immovable property sale as a non-resident depends on the capacity in which you are making the sale:

• 7.5% of the sale price if the seller is an individual
• 10% of the sale price if the seller is a company
• 15% of the sale price if the seller is a trust

However, withholding tax is not as straightforward as it seems because it’s not the final tax amount. This can only be calculated once your tax liability for the year of assessment is determined and only then will it become apparent whether you have underpaid or overpaid tax on the sale of your property in South Africa. This means that you might land up having to pay more than you were supposed to through the withholdings tax, but as long as you apply for a refund within 12 months of it being withheld, you will be refunded the excess tax paid.

Let’s take a step back. As a non-resident seller of immovable property, it is possible for you to request that tax be withheld at a lower rate or even a zero rate.This is where being prepared can pay off – saving you lots of time and possibly lots of money in the process.

• It is possible to ensure that you don’t land up overpaying on withholding tax if you instruct the attorney or agent handling the property transfer to apply to SARS for a tax directive to reduce the withholding tax.
• When done correctly, this can reduce the withholding tax amount payable, which saves the time and admin of claiming this money back later as a tax refund. 
• The facts of your particular situation will need to substantiate the request for a lower or zero tax rate on the sale of your property, such facts will include whether you have a low taxable income and whether you disposed of the property at a loss.

Important to remember: the withholding tax for non-resident sellers does not apply to  properties with a selling price of R2 million or less.However, it does mean that you will need to factor all of these things in when making the decision on whether or not it’s worth your while to sell your South African property.

 

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