The Minister of Finance announced in the budget speech on 21 February 2018 that the standard VAT rate of 14% will increase by 1% from the 1st of April 2018.
The first question that is asked is, how does the new rate affect my property transaction? To answer this question, one must first distinguish between the different transactions and the different relationships and expenses within a transaction.
If a transaction is a VAT transaction, and not a transfer duty transaction, then one has to differentiate between Residential property transactions and Commercial property transactions.
Residential Property transactions:
VAT at 14% is payable on residential property transactions provided that:
- The written Sale Agreement was signed and entered into before the 1st of April 2018 and
- The price has been agreed to in the Sale agreement between the seller and purchaser.
Even if registration of the property only takes place in the Deeds Office after 1 April 2018, VAT will be payable at 14%.
This rule only applies to buildings or structures that are intended for use as a place of residence but also include property bought off-plan which still needs to be constructed or a partly completed residence.
Should the agreement of sale be entered into after 1 April 2018 then VAT will be levied at 15%.
Commercial Property:
Where the property does not qualify as residential, VAT will be payable at the rate applicable on the date of registration of transfer of the property in the deeds office or the date of payment of the purchase price to the seller, whichever date occurs first.
This means that all transfers of commercial property that register after 1 April 2018 will attract VAT at 15%.
What about Estate Agents Commission?
If the tax invoice for commission is received from the estate agency before 1 April 2018 then 14% VAT will be payable on the commission. Should you receive the tax invoice after 1 April 2018 then 15% VAT is payable. However, the agreement between a seller and an estate agency regarding commission is always seen as an independent agreement to that of the sale agreement and, as such, these matters should always be discussed between the agent and seller himself.
What about Conveyancing fees?
If the Conveyancing firm is VAT registered, then, like with any other VAT vendor, the fees will attract the applicable VAT rate, as at date of registration of transfer, and not as at the date of conclusion of the agreement, as the fees are only earned and debited on registration and not before that.
We advise that potential sellers and purchasers seek advice from ourselves or their auditors before entering into any agreement where VAT is applicable.
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