Individuals whose sole asset in a company, trust or CC is their primary residence can transfer their property into their own name without having to pay capital gains tax (CGT), transfer duty and secondary tax on companies (STC) until December 31 2012. This is a huge tax saving of just under 22%.
However, if the company, CC or trust has registered a bond over the property, the bond would need to be cancelled and possibly refinanced in the name of the natural person.
Magnus Heystuck from Brenthurst Wealth Management warns that banks do not always refinance “these loans at the same interest rate as before. Many if not most of these properties received bonds at prime minus 2% years ago and before the NCA ( National Credit Act) came into being.
“Many people are reluctant to refinance as they will end up paying substantially more in interest and in some cases might not even qualify for a new loan in terms of the strict criteria used by the banks nowadays”.
The NCA aims to prevent reckless lending, over-indebtedness and unfavourable lending practices.
Both Nedbank and First National Bank told Moneyweb, loans will only be adjusted if the risk profile of the person transferring the property into their own name has changed.
Pat Lamont, general manager for sales and customer service, Nedbank Home Loans, said “Nedbank Home Loans does not re-price the home loan if the client’s risk profile remains the same. Should the borrowing parties change through the process, this will result in a new loan which will be priced according to the new risk factors.”
Lamont says if you were the owner of the trust, company or CC that holds the property and then transferred it to your own name that would not be considered a change in borrowing parties, but if you held the trust, company or CC with your spouse and have since divorced and you transfer the property into either of your names that would be a change in borrowing parties.
Wimpie Potgieter, head of operational credit at FNB Home Loans, says “our existing credit agreement is in the name of the juristic entity [or borrowing party]. When customers apply we issue a new NCA credit agreement on the individual based on their current risk profile.
“The current risk profile of the individual may differ substantially from the time of granting the initial loan in the name of the juristic entity. Based on the changes in the consumer’s profile and the changes in the bank’s risk appetite, cost of funding structures we will negotiate credit and rate.
“Other aspects to consider are: customers often require an increase on the current outstanding capital amount, a term extension, changed jobs etc. The dynamics and risk, of the first agreement in the name of the juristic entity, would change”.
Ben Strauss, director of tax and Rekha Jaga, director, real estate at Cliffe Dekker Hofmeyr also warn that:
- The law does not provide for relief from donations tax. So, be very careful when implementing the transaction to make sure that donations tax does not arise.
- The transfer of the property to the natural person may have estate duty implications for the natural person as the value of her estate may be increased.
- If there are loans owing by or to the company, CC or trust these would need to be settled, otherwise the relevant creditor may suffer CGT or income tax if the loans are simply written off.
- The relief does not apply to assets other than residential immovable property eg, commercial immovable property, golf memberships and motor vehicles.
- You need to think carefully about what the underlying cause for the disposal will be eg will it be a sale or a distribution?
- You will need to pay conveyancing fees and charges to transfer the property.
Source: Monique Vanek, www.moneywebtax.co.za
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