Will you pay Capital Gains Tax when inheriting and selling a property in South Africa?

Inheriting a property in South Africa can be a blessing, but you might wonder if you’ll face tax implications from such an inheritance. Luckily, the inheritance itself isn’t taxed immediately, but Capital Gains Tax (CGT) might apply when you eventually dispose of the property. Let’s take a look at Capital Gains Tax in the context of an inherited property in South Africa, so that we can address your concerns and guide you through the process.

Understanding Capital Gains Tax (CGT) on your inherited property in South Africa

As mentioned, there is no immediate tax on your inheritance. You do not pay tax on inheriting the property itself. The tax implications of such a South African inheritance are delayed until you dispose of the asset you inherited. And at this point, the tax implications of your property sale will depend on your tax residency status at the time.

So, what is Capital Gains Tax in South Africa?

In South Africa, Capital Gains Tax (CGT) is a tax levied on the profit you make when you sell an asset like property, shares, or a business for more than you bought it for.

Who pays CGT in South Africa? Individuals, companies, and trusts can be liable for CGT depending on the asset and their tax residency.

When Capital Gains Tax applies: You only pay CGT when you dispose of an asset and make a capital gain. This means the selling price exceeds the base cost (purchase price + inflation adjustments).

What is the Capital Gains Tax rate? The CGT rate is tiered based on your taxable income bracket. For most individuals and special trusts, the maximum effective rate is 18%. Higher rates apply to companies and some types of trusts.

How do you calculate CGT on your inherited property?

CGT applies to profits made when you sell an asset, including inherited property in South Africa. Its calculation considers two key factors:

• Base Cost: This is the value of the property on the date of inheritance. It becomes the starting point for determining your capital gain.
• Selling Price: When you sell the property, the difference between the selling price and the base cost represents your capital gain. (Your capital gain is the selling price minus the base cost.)
• You pay CGT based on the profit, not the inheritance value.
• 40% of your capital gain is taxed at your marginal income tax rate, resulting in a maximum effective rate of 18% for individuals.

It is important to note, with regards to Capital Gains Tax in South Africa that:

• There are exemptions and exclusions for certain assets, such as primary residences up to a certain value.
• Non-residents selling property might face additional withholding tax.

Selling an inherited property in South Africa – tax resident vs. non-resident:

• Residents: Only CGT applies when selling inherited property.
• Non-residents: Both CGT and withholding tax might apply (more on this later).

When you decide to sell your inherited property in South Africa, it is important that you:

• Clearly understand your residency status and its tax implications.
• Keep the inheritance date and property value for base cost calculations.

Selling your inherited South African immovable property

If you do not meet the requirements to be a South African tax resident, you will be treated as a non-resident and charged withholding taxes on the sale of property, as outlined in section 35A of the Income Tax Act, where the property sells for more than R2 million. 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.

As a non-resident seller of inherited property, there are two main taxes that might affect your transaction: Capital Gains Tax (CGT) and Non-Resident Withholding Tax.

1. Capital Gains Tax (CGT)

• Applies when you sell an asset for more than you bought it for (including inherited property).
• For inherited property: the base cost for calculating CGT is the value of the property on the date of inheritance.
• Tax rate: depends on your taxable income and can be up to 18% for individuals.
• Important: Even though you don’t pay tax on the inheritance itself, you might have to pay CGT when you sell.

2. Non-Resident Withholding Tax

• Applies to non-resident sellers when the property sells for R2 million or more.
• Tax rate: depends on the legal entity (individual, company, or trust) and can be up to 15%.
• Purpose: to secure any potential CGT owed by the seller (that’s you).
• Important: the purchaser withholds the tax and pays it to SARS.

Key points to remember about the tax implications of selling an inherited property:

• If you inherited the property as a resident, only CGT applies when you sell.
• If you inherited the property as a non-resident, both CGT and withholding tax might apply.
• You can apply to SARS for a reduced or waived withholding tax under certain circumstances.

FinGlobal: cross-border financial specialists for South Africans abroad

Inheriting a property in South Africa doesn’t have to be a daunting affair. If managed correctly, it can turn out to be a major financial blessing to you and your family. When you’re ready to dispose of this inherited asset, it’s important to take into consideration your South African tax residency status, and the tax implications of your inherited property disposal.

That’s where FinGlobal can assist. We can help you clarify your South African tax resident status, and assist you with understanding your Capital Gains Tax liability, as well as minimising your withholding tax liability, and  international money transfers from South Africa.

To find out more about our convenient, reliable cross-border services for South African expats, simply contact us and we’ll answer all your questions about your inherited South African property.