The tax implications of selling your primary residence

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The tax implications of selling your primary residence

Most property owners seem to think that they are only liable for Capital Gains Tax (CGT) on the sale of any additional properties that they own, not their primary residence. This is, however, a common misconception, and you can indeed be held liable for CGT when you sell your prime residence, yes, even if you live there.

The capital gains tax was introduced on 1 October 2001. It applies to all gains made on the disposal of capital assets from this date. The exclusions are the important part though. But first.

How do you calculate the CG on your property?

You start with the base cost, which is your purchase price.

Lets say you bought a primary residence for R2 million, then that is your base cost. If you sell the property for R3.5 million then your selling price minus your purchase price is your capital gains. In this case its R1.5 million.

This is where the exclusion comes in. Every person has a R2 million exclusion on their primary residence. This means you will not be taxed on the first R2million of your capital gains. In the above example the CG was R1.5m, so there was no tax applicable.

If you sold that same property for R5 million, then your CG is R3 million, but after your exclusion you will only be taxed on R1 million of your total capital gains.

How much tax will you have to pay?

This is a tricky one and there is no quick answer. While you can work out the amount of capital gains you will be taxed on, how much you will be taxed depends on your what you earn, other income streams and your tax bracket. Every tax payer also receives an annual capital gains tax exclusion of R40 000, which needs to be taken into account when calculating your CGT.

What you need to know

To qualify for the primary residence R2 million exclusion, the property in question must be used by the owner as their main residence. Comply with all SARS's requirements with regards to CGT, and your tax will be greatly reduced. It's also important to keep copies of the sales document to show the tax man if need be.

If you want to know more about the tax implications of selling any of your properties, please contact your financial advisor. Do not hesitate to give us a call or pop into see us regarding any property matters.

Author: Helen Ward

Submitted 15 Dec 17 / Views 385