Related Party Transfers: How To Avoid Paying Transfer Duty

Transferring property between family members or related parties is a common occurrence in South Africa. Whether it’s a parent gifting property to a child, a transfer between spouses, or a restructuring of assets within a family trust, understanding the legal framework around transfer duty can lead to significant cost savings.

South African law provides certain exemptions from paying full transfer duty, most notably under Section 9 of the Transfer Duty Act 40 of 1949. However, these exemptions come with strict requirements, and compliance with South African Revenue Service (SARS) procedures is essential.

This article explores the key legal exemptions, the benefits available under Section 9, and the SARS requirements for transferring property between related parties.

Understanding Transfer Duty

Transfer duty is a tax payable to SARS when property is acquired by a person. It is calculated based on the purchase price or market value (whichever is higher). The rate of transfer duty is progressive, with higher-value properties attracting higher rates.

Section 9 of the Transfer Duty Act: Key Exemptions

Section 9 sets out scenarios in which transfer duty is not payable, or is reduced. The most relevant exemptions for related-party transfers include:

1. Transfer Between Spouses

No transfer duty is payable when property is transferred between spouses, whether married in or out of community of property.

2. Inheritance Transfers

Property acquired by heirs or legatees from a deceased estate is exempt from transfer duty, provided the transfer is in accordance with the will or the Intestate Succession Act.

3. Divorce Settlements

Property transferred between spouses in terms of a divorce order is exempt.

4. Transfers to Trusts

Under certain conditions, transferring property to a trust (particularly a special trust) can be exempt from full transfer duty.

5. Restructuring Within a Group of Companies

While not strictly a family-related scenario, certain corporate restructurings also qualify for exemptions.

Benefits of Legal Exemptions

Making use of Section 9 exemptions can:

• Save significant costs by avoiding full transfer duty rates.
• Facilitate estate planning by enabling smooth transfers between family members.
• Support asset protection strategies when moving property into trusts or between spouses.

SARS Requirements for Exempt Transfers

Even if an exemption applies, the transaction must be reported to SARS and the necessary documentation submitted:

1. Declaration Form (TD2): Completed by both parties, stating the nature of the transaction.
2. Supporting Documents:
3. Marriage certificate (for spousal transfers)
4. Divorce order (for divorce-related transfers)
5. Letters of Executorship and will (for inheritance transfers)
6. Trust deed and resolutions (for trust-related transfers)

3. Market Value Confirmation: SARS may request a valuation to confirm the property’s market value.
4. Proof of Relationship: Documentary evidence of the relationship between the parties.

It’s important to note that SARS will scrutinise transactions to ensure they are genuine transfers between related parties and not disguised sales designed to evade duty.

Common Pitfalls to Avoid

• Incorrect Valuation: Under-declaring the value of a property can not only result in SARS imposing significant penalties and interest, but it can also trigger an investigation into the legitimacy of the transaction. Always obtain a professional valuation or market assessment to ensure accuracy.
• Missing Deadlines: Transfer duty declarations must be submitted within six months of the date of acquisition. Failure to meet this deadline can result in automatic penalties, interest charges, and unnecessary delays in the registration process.
• Incomplete Documentation: Failing to provide all the required supporting documents (e.g. proof of relationship, trust resolutions, or court orders) can lead to prolonged processing times and may jeopardise the exemption claim entirely.

Conclusion

Transferring property between related parties without paying full transfer duty is possible when specific legal exemptions apply. Section 9 of the Transfer Duty Act provides valuable relief in situations such as spousal transfers, inheritance transfers, and certain trust arrangements. However, the process requires careful compliance with SARS requirements to see to it that the exemption is deemed valid.

For professional assistance with related-party property transfers and to ensure all legal and tax requirements are met, contact us today.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article which may result in any harm or liability flowing from the use of or the inability to use the information provided.