There are four main ways that you can buy and own property in South Africa and the decision on the appropriate entity for the acquisition of immovable property is not a decision to be taken lightly, says Peter Gilmour, Chairman of RE/MAX of Southern Africa.

He explains that South African law recognises two different types of "persons" ? natural persons and juristic persons. "Natural persons are people who act and conduct business in their own name. Juristic persons are legal entities such as close corporations, companies and trusts."

Andrew Heiberg, a director of the real estate business law firm Cliffe Dekker Hofmeyr, says that there are different tax and legal implications that apply depending on the investment structure that you use when buying property and as such it is highly advisable to consult with an attorney to find out which option is best for your particular needs.

Purchasing property as a natural person

This refers to when you buy property in your own name ? as an individual and not as a legal entity such as a close corporation, company or trust. Transfer duty is paid on a sliding scale when you buy property in your personal capacity ? properties priced between R0 and R500 000 are exempt, properties priced between R500 001 and R1-million pay five percent on the value above R500 000 and properties priced above R1-million pay five percent on the value between R500 001 and R1-million (i.e. R25 000) plus eight percent on the value above R1-million.

Heiberg explains that, provided the property is the buyer?s primary residence, the first R1.5-million of any profit made on the sale of the property is exempt from Capital Gains Tax (CGT).

Also, where the primary residence is sold for R2-million or less, the full capital gain will be disregarded. A total of 25 percent of whatever profit remains after the R1.5-million exemption and the natural person's annual capital gain/loss exclusion (presently at R17 500) will, however, be added to the seller?s income for the year and taxed at the applicable marginal rate of income tax, resulting in a maximum effective CGT cost of 10 percent.

He says, however, that non-resident individuals could qualify for the primary residence exclusion in certain, limited circumstances. The non-resident would have had to use the residence as his/her main ordinary residence in order to qualify. The chances are slim that this would be applicable to a non-resident, but the possibility exists that it could apply.

With regards to estate duty, upon death of the owner the value of the immovable property will be subject to estate duty. This is payable within six months of death at 20 percent on estates in excess of R3.5-million.

Says Gilmour: "The major downside to owning property in your own name is that if you are self-employed and run your own business, if at any time you are unable to pay your creditors, the home you live in, as well as any other properties that you may own in your name, will become the prime target of your creditors and can be taken away from you.

Other cons include the fact that the R1.5-million CGT exemption does not apply if the property is not your primary residence as well as the fact that estate duty is payable on death.

Again, Heiberg notes that that non-resident individuals could qualify for the primary residence exclusion in certain, limited circumstances.

"On the plus side, however, purchasing property in your personal capacity boasts the lowest transfer duty and, if it is your primary residence, the lowest CGT too. Also, the investment doesn?t need to be audited which minimises administration costs," he explains.

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