Should a property be transferred to a trust, that transaction will draw transfer duty, which at times can be a costly exercise.
The reason that, in effect, the owner of the property will actually sell the property to the trust.
If a usufruct (the right to enjoy the use and advantages of another’s property) is implemented and registered over the property it will provide a substantial tax saving solution.
SARS will deduct the value of the usufruct off the purchase price to determine the bare dominium value.
You only have to pay transfer duty on the value of the bare dominium.
The usufruct grants the right of occupation or habitation to a person to make use of a property that belongs to someone else for a limited period of time.
A typical example of a usufruct is when a person bequeaths his property to his children but grants the right of occupation to his surviving spouse.
In the event of his death, his spouse can continue to live in their home and enjoy the benefits for the remainder of her life. It is only after her death that the children may take occupation of the property or dispose of it.
The application of a usufruct in the case of a trust however, is a little different. The owner of the property can transfer ownership to the trust but then retain the right of occupation for a fixed period of time.
If you wish to transfer your family home to a trust, for whatever the reason, for example, as part of your estate planning, but you want to continue living in the home or be able to rent it out or enjoy the fruits of the property, you sell the property to the trust for R2-million. Since you are only 50 years old and you expect to live to for many more years, you retain a usufruct for 36 years.
Without the usufruct you could expect to pay R60 500 in transfer duty but the application of the usufruct will result in zero transfer duty.
* How is this legal, never mind even possible?
The seller sells his/her property to his/her trust for R2-million retaining a usufruct for a period of 36 years. The transfer duty payable on this transaction will not be R60 500 but R0 (nil Rand).
Bear in mind that the conveyancer’s transfer and bond registration costs will still be payable save for the saving on the transfer duty.
Suppose the value of the property for the purpose of this example is R2-million. The usufruct value is calculated by capitalising R2-million allowing for the seller’s life expectancy (according to tables) and multiplying it by 12 per cent (or a percentage as approved by SARS), therefore R2-million x 8,1924 x 12 per cent = R1 966 176 (value of the usufruct).
The bare dominium value is R2-m – R1 966 176 which equals R33 824.
It is vitally important to get advice from an experienced property conveyancer for such transactions, as there a many legal factors to bear in mind, such as:
The property will be owned by the trust and not the seller, only subject to a usufruct in the seller’s favour.
The seller’s usufruct will diminish with each passing year until such time as the usufruct lapses (the usufructuary passes) and the trust becomes owner of the whole property.
Once the property has been transferred to the trust subject to the usufruct the property cannot be sold or bonded without the usufruct holder’s written consent.
Should you have any questions relating to property law or conveyancing, kindly direct it to conveyancing@sjbothaattorneys.co.za
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