Immovable property may be registered in the name of natural persons or in the name of a legal entity such as a trust, CC or company. Clients who intend purchasing a residential property which is to be their primary residence (permanent home) often ask me for advice on the issue of whether they should register the property in their own name or in the name of a legal entity. As with most things in life there are advantages and disadvantages to both courses of action.
One of the immediate disadvantages of registering a property in the name of a legal entity is that the transfer duty payable is calculated at 8% of the purchase price. Transfer duty payable if a property is registered in the name of a natural person is considerably lower.
Another distinct disadvantage of registering your home in the name of a legal entity is that you (or more accurately the legal entity in whose name your home is registered) will not be entitled to the Capital Gains Tax exemption, which applies in respect of primary residences which are registered in the name of a natural person. Capital Gains Tax (CGT) came into effect on 1 October 2001 and is payable in respect of all property sold after that date. However, if property is registered in the name of a natural person and is the primary residence of that person then no CGT is payable on profits of up to R1.5 million. The exemption however does not apply if your residence is registered in the name of a legal entity.
The recent amendments to the Transfer Duty Act have also eliminated one of the advantages (or perceived advantages) to registering a residence in the name of a legal entity. Prior to the abovementioned amendments if a residential property was registered in the name of a CC or company transfer duty could be avoided when the property was sold if the purchaser purchased the shares in the company or membership interest in the CC. It remains a contentious issue whether transfer duty could be avoided if the property was registered in a trust and the purchaser “purchased” the trust. However, in terms of the abovementioned amendments transfer duty is now payable even if the purchaser “purchases” the company, CC or trust which owns the property.
Notwithstanding the above there are certain potential advantages to having even your home registered in the name of a legal entity. For example having your property registered in the name of a trust may provide certain estate planning advantages. Furthermore having your property registered in a legal entity could provide protection against creditors. Businessmen in particular are sometimes prepared to accept the disadvantages of having their home registered in a legal entity in exchange for the advantage of protecting this asset against claims by business creditors in the event of their businesses running into financial difficulty.
It is not possible to give general advice on the issue of whether or not your home should be registered in the name of a natural person or a legal entity. It is probably safe to say that having regard to current legislation the average man in the street is better off registering his home in the name of a natural person. In the case of people who have their own businesses and people who have large estates it may well be worth considering registering your home in the name of a legal entity. Each case will have to be judged on its own merits having regard to the legal and tax implications
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