VAT and Transfer Duty are both taxes related to property sales, but they never apply at the same time. VAT (Value-Added Tax) is charged at 15% when the seller is VAT-registered, and it’s already included in the purchase price (or added if stated). Transfer Duty, on the other hand, is a tax paid by the buyer to SARS when the seller is not VAT-registered, and it applies on properties sold for more than R1,100,000. In short: if VAT is payable, there is no Transfer Duty, and vice versa.
1. Key Principle
The VAT treatment of a property sale depends on two main factors:
1. How the property was used before the sale
2. Whether the seller (and sometimes the buyer) is VAT registered
2. Property Used for Long-Term Residential Letting
If the property was previously leased to tenants under long-term residential leases (e.g., 6 or 12 months), the rental income is classified as an exempt supply under:
Section 12(c) of the VAT Act 89 of 1991:
“The supply of a dwelling under an agreement for the letting and hiring thereof is an exempt supply.”
Therefore, the property was not used in a VAT-taxable enterprise, even if the seller is VAT registered.
3. VAT and Transfer Duty by Scenario
SCENARIO 1: SELLER IS VAT REGISTERED, BUYER IS NOT VAT REGISTERED
Property use: Residential letting (exempt supply)
Is the sale subject to VAT? No
Is transfer duty payable? Yes, by the purchaser
Even though the seller is a VAT vendor, the property was not used for taxable supplies, so the sale is exempt from VAT, and transfer duty applies.
SCENARIO 2: BOTH SELLER AND BUYER ARE VAT REGISTERED
Property use: Residential letting (exempt supply)
Is the sale subject to VAT? No
Is transfer duty payable? Yes, by the purchaser
Even if both parties are VAT vendors, if the property was used for exempt residential leasing, it was not part of a taxable enterprise. The sale is not subject to VAT, and transfer duty applies.
Important: The sale cannot be zero-rated as a going concern under Section 11(1)(e) of the VAT Act, because the property was not used for taxable supplies.
SCENARIO 3: NEITHER SELLER NOR BUYER IS VAT REGISTERED
Is VAT applicable? No, because the seller is not VAT registered
Is transfer duty applicable? Yes, by the purchaser
This is the most straightforward case. The transaction is outside the scope of VAT, and transfer duty is always payable.
4. When is VAT Applicable on Property Sales?
VAT applies only if:
The seller is a VAT vendor,
and
The property is being sold in the course or furtherance of a taxable enterprise (i.e. used to generate taxable income such as short-term stays, guesthouses, or commercial leasing).
Then: VAT at 15% is charged on the selling price, unless the sale qualifies to be zero-rated as a going concern under Section 11(1)(e) of the VAT Act.
5. When is VAT Exempt?
A property sale is exempt from VAT when:
The seller is a VAT vendor,
but
The property was used exclusively for long-term residential letting, which is an exempt activity under Section 12(c).
In this case, no VAT is charged, and transfer duty applies instead.
6. When is Transfer Duty Applicable?
Transfer duty is payable by the purchaser when:
The property sale is not subject to VAT, regardless of the VAT registration status of either party.
Transfer Duty Act 40 of 1949 governs the calculation, based on the purchase price or market value, whichever is higher.
7. Summary Table
Scenario VAT Registration Previous Use VAT Charged Transfer Duty
1. Seller: VAT ✔️ / Buyer: ❌ Seller only Residential letting (exempt supply) ❌ No ✅ Yes
2. Seller: VAT ✔️ / Buyer: VAT ✔️ Both Residential letting (exempt supply) ❌ No ✅ Yes
3. Seller: ❌ / Buyer: ❌ Neither Residential letting ❌ No ✅ Yes
4. Seller: VAT ✔️ / Buyer: VAT ✔️ Both Short-term stays / commercial use ✅ Yes (or zero-rated) ❌ No
5. Seller: VAT ✔️ / Buyer: ❌ or ✔️ Seller (Buyer varies) Mixed use or commercial letting ✅ Yes (if part of a taxable enterprise) ❌ No
When is VAT Payable?
VAT (Value-Added Tax) is payable if the seller is a VAT-registered vendor (taking the above table into consideration), regardless of whether the seller is a company or a private individual.
• VAT is charged at 15%, unless the transaction qualifies as zero-rated.
Who is responsible for VAT payment?
• Normally The buyer pays the VAT-inclusive amount to the conveyancer, along with the purchase price.
• The conveyancer is responsible for paying the VAT to SARS on behalf of the seller.
• This is essential because:
o SARS will only issue a Transfer Duty/VAT receipt once the VAT is paid.
o This receipt is required before transfer can be lodged with the Deeds Office.
📄 Claiming Back VAT
o The buyer’s accountant can request a copy of the VAT payment receipt from the conveyancer.
o If the buyer is entitled to do so, they can claim back the VAT via their SARS VAT return.
Must the purchase price as advertised include VAT
Yes. Legally, if VAT is applicable:
• The advertised price must state clearly whether VAT is included or excluded.
• Common wording:
o “R2,500,000 VAT Inclusive”
o “R2,500,000 + VAT at 15%”
⚠️ If the ad does not mention VAT, the price is deemed to be VAT inclusive and payable by the buyer, which means as seller it is possible to get less than anticipated.
When is it a Zero Rated transaction?
A transaction may qualify for zero-rated VAT (0%) if:
1. The seller is VAT registered.
2. The buyer is also VAT registered.
3. The property is sold as a going concern — such as a tenanted commercial building or a guesthouse generating income.
4. The business continues uninterrupted by the buyer.
5. The OTP specifically states that the sale is zero-rated as a going concern.
👉 Even though 0% VAT is applied, the transaction still must be recorded and reported to SARS, and all conditions must be met.
⚠️There is a specific clause that must appear on the Deed of Sale when the transaction is zero rated as it has to be a going concern according to the in terms of Section 11(1)(e) of the Value-Added tax Act (Act 89 of 191 as amended. Without these clauses, SARS will automatically reject the zero-rated application and add VAT to the transaction. Sars may also request proof that the property is sold as a zero-rated transaction.
Here is an example of the required wording:
1. ZERO RATING OF VALUE-ADDED TAX
1.1. It is recorded that it is the intention of the parties that this transaction be a zero-rated transaction in terms of Section 11(1)(e) of the Value-Added tax Act (Act 89 of 191 as amended from time to time), and it is agreed that the OFFERED AMOUNT is exclusive of VAT AT a rate of zero percent.
1.2. It is recorded that the PROPERTY constitutes an enterprise as defined in the Act and is sold as a going concern that will on date of transfer, be an income earning activity capable of separate operation, and the supply of the PROPERTY shall be Zero rated in terms of Section 11(1)(e) of the Act.
1.3. It is recorded that the assets and all other aspects of the business that are necessary for carrying on the enterprise, are being disposed of to the PURCHASER in terms of this Agreement.
1.4. The SELLER and the PURCHASER respectively warrant, if applicable, with effect from the date of conclusion of this Agreement, that they will be registered as vendors in terms of the Act. The PURCHASER undertakes to provide the SELLER’S ATTORNEYS with a copy of its VAT registration certificate (form VAT103) at least 21 (twenty-one) days before the anticipated Transfer date and the PUURCHASER warrants that it has applied for VAT registration in respect of this Agreement.
2. It is recorded that notwithstanding the fact that the parties may have intended, and so record that the transaction will be Zero rated for VAT, if it transpires that the position is factually incorrect, the PURCHASER will be liable for the payment of VAT as the standard rate of 15% (fifteen percent), irrespective of what the parties intended.
