What are the VAT implications for Property Sales and Rentals?

What are the challenges faced by sellers, landlords, and estate agents when it comes to selling or renting properties?

They have to be knowledgeable in many different fields, including VAT, which can have implications on the asking price, marketing information, the estate agents’ commission and the overall outcome of the transaction which may fall apart because of errors in VAT.

What is the general rule of thumb regarding VAT and property transactions?

If the property is NOT sold as a going concern, then the seller’s VAT status will determine whether VAT or transfer duty will be applicable in the transaction.

What are the requirements for a property to be sold as a going concern (0% VAT payable)?

i) Both the seller and the purchaser as described in the Offer must be registered for VAT;

ii) There must be VATable businesses being conducted at the property which is being sold as part of the property (like a lease); and

iii) the VATable business must also be sold from seller to purchaser.

What happens if the seller and buyer are both VAT vendors but there is no business being sold with the property?

Then the Offer price will have to provide for the 15% VAT which will be paid by the buyer as part of the purchase price. The buyer can then claim back the 15% from SARS as soon as his/her/its business starts operating.

Why do sellers, landlords, and agents prefer to advertise a property excluding VAT?

They prefer it for obvious reasons, such as avoiding a higher asking price, which can affect the property’s marketability.

Can a purchaser insist on an inclusive VAT price even if the property is advertised as exclusive of VAT?

Yes, they can. The seller will have to pay the VAT to SARS, calculated on the selling price, and cannot add it to the asking price. Clarity in respect of the TOTAL PRICE is required though so there are no disagreements later.

Is it legal to advertise a property without VAT or as exclusive of VAT?

No, it is illegal to advertise a property without including VAT. The Value-Added Tax Act 89 of 1991 requires that any price advertised or quoted by a VAT vendor must include VAT.

What happens if a seller, landlord, or estate agent advertises a property as VAT-exclusive?

It is a criminal offense, punishable by law, to advertise VAT-exclusive prices.

Can estate agents add VAT to their commission later on?

No, estate agents earn commission on the sales price ex VAT (so the net sales price) and the agents must then add their own VAT to their commission.

Is it still common practice to advertise properties as VAT-exclusive?

Yes, it is still a common practice, despite being illegal. Sellers, landlords, and estate agents should be aware of the legal requirements regarding VAT and property transactions.