These days it is seldom advantageous (from a tax point of view anyway) to register ownership of a private home in the name of a trust, close corporation or company.

This has been a popular practice in the past, but the South African Revenue Service (Sars) has moved to close down the tax advantages that this practice once offered.

According to RE/MAX Regional Director, Bruce Swain, the advantage of the current position is that people are encouraged to simplify their affairs, so that actual control and use match legal ownership much more closely.

According to Conveyancing attorney Grant Gunston, when you buy a property in the name of a trust, close corporation or company, you'll pay additional tax both when purchasing and when selling.

From March 1 2006, these entities pay a flat eight percent transfer duty when purchasing (whereas private individuals pay transfer duty in accordance with a sliding scale of zero, five and eight percent). On selling, these entities do not enjoy the exemption from Capital Gains Tax (CGT) which applies to private individuals who sell their primary residence (currently R1.5-million of the 'profit').

The rate at which CGT is paid is also higher for legal entities than that which applies to private individuals, and there is the added problem of secondary tax on companies should you want to take the profits out of a company or close corporation, for use by the individual/s behind the entity.

Loopholes have been closed

Gunston says that in the past people were willing to pay the higher transfer duty on the basis that they would make the difference back when they sell — the theory being that by selling the actual company or close corporation that owned the property, they would be able to realise a higher price given that no transfer duty would be payable.

"Whether one actually achieved a higher price in practice is debateable, but in any event, the definition of 'property' in the Transfer Duty Act has now been amended so that sales of legal entities that own residential property now also attract transfer duty — thus doing away with the transfer duty loophole," says Gunston.

Legal entities still an option

Having painted the above negative picture regarding home ownership in legal entities, it should be said that there are still valid reasons to use these entities for home ownership. A trust is appropriate for example, both as a way of protecting assets from future creditors, and also as an estate planning tool.