When selling property, it’s easy to focus on the profit. But before you count your gains, it’s important to understand how Capital Gains Tax (CGT) may affect your bottom line. Whether you’re a homeowner, trustee, or investor, CGT can significantly reduce your sale proceeds if not properly planned for.

CGT is not a stand-alone tax like VAT or transfer duty. Instead, it’s integrated into the income tax system and applies when you dispose of a capital asset, most notably immovable property. In terms of the Income Tax Act 58 of 1962, both natural and juristic persons, including individuals, companies, and trusts, are subject to CGT upon the disposal of such assets.

The term “disposal” in this context is broad and does not only refer to a sale. It includes donations, expropriations, and even the transfer of an asset to a beneficiary by a trust. If the proceeds received upon disposal exceed the asset’s base cost, a capital gain arises and becomes subject to tax.

CGT has been part of the South African tax landscape since 1 October 2001. Any gains realised from the disposal of assets acquired before that date are excluded. The base cost typically includes the original purchase price, along with costs associated with acquiring, maintaining, and improving the property such as transfer duty, agent fees, attorney costs, and qualifying capital improvements.

To calculate CGT, the following formula generally applies:

Capital Gain (less exclusions) × Inclusion Rate × Marginal Tax Rate

Let’s break that down:

• The capital gain is calculated by subtracting the base cost from the total proceeds of the sale.
• You may deduct certain exclusions before calculating the taxable portion.
• The inclusion rate determines how much of your capital gain is subject to tax. This is currently 40% for individuals and 80% for trusts and companies.
• Finally, the result is multiplied by the taxpayer’s marginal income tax rate, which for individuals ranges from 18% to 45%, depending on income level.

Primary Residence Exclusion

For individuals selling their primary residence, the Income Tax Act offers a generous exclusion: the first R2 million of capital gain is exempt from CGT. This only applies if the home is registered in the name of a natural person and used predominantly for private residential purposes.

If the property is registered in the name of a company, trust (excluding special trusts), or if it is not your primary residence, this exclusion does not apply. In those cases, only the standard annual exclusion of R40,000 for individuals may be deducted from the gain.

CGT on Death

Another often-overlooked scenario is the impact of death on CGT liability. When an individual passes away, a deemed disposal of their assets occurs at the market value on the date of death. This can result in a capital gains tax obligation that becomes payable by the deceased’s estate. Failure to plan for this can cause liquidity issues for heirs or delay the finalisation of the estate.

Multiple Disposals in a Single Year

If more than one capital asset is disposed of in a tax year, for instance, selling both a property and shares, each transaction must be assessed independently for CGT purposes. The individual gains are then aggregated and included in the annual tax return. This can result in a significantly higher CGT liability than expected if not accounted for in advance.

Plan Ahead to Avoid Surprises

Because CGT is only triggered upon disposal and assessed annually with income tax, it’s crucial to plan in advance. A professional tax advisor can help you:

• Understand your potential tax exposure
• Maximise any available exemptions or exclusions
• Ensure you set aside sufficient funds to meet your tax obligations

Failing to account for CGT can reduce your expected profit and create unexpected burdens at tax time. Whether you’re considering the sale of a personal residence, investment property, or shares, professional guidance is essential.

Need Guidance on CGT or Property Transactions?

At Latita Africa, our team of legal and tax professionals is equipped to assist individuals, companies, and trusts in understanding the full scope of capital gains tax obligations. From tax planning to transaction execution, we ensure your financial affairs are compliant and optimised.

📩 Contact us today to schedule a consultation tailored to your needs.