What does it cost to put my house in a trust?

There are direct costs and there are opportunity costs.

Let's look at the direct costs first.

Capital Gains Tax

Because you are a connected person in relation to the trust, the sale (you would not want to make it a donation) will be deemed to be at market value and CGT will apply at up to 18% of the increase in value over the base cost (purchase price plus cost of improvements) as if you had sold the house to a third party.

But don't despair! You are allowed to make a capital gain of R2m before CGT kicks in.

Transfer Duty

Again, the transfer duty will apply to the market value, regardless of the sale price. Transfer duty starts at zero, then climbs to a maximum of 13% according to the scale below.

TransferDutyRates

Conveyancer's fees

These will depend upon the conveyancer and the value of the property. We recommend KG Tserkezis Inc. Speak to Dino and tell him that Derek referred you.

Interest and Donations Tax

This one's a little complicated. You'll have to lend the trust, or its company, the money to buy the house from you. SARS requires that you charge interest on the loan at a minimum of the official rate (which is published by SARS and is currently 7.75%). Any shortfall on the interest is deemed to be a donation each year and is therefore subject to Donations Tax at 20%. However, every natural person may donate a total of R100 000 per year free of Donations Tax, so if you and your spouse each donate the interest up to a total of R200 000, then there's no problem with the first R2,5m of the loan. If your are both under 65, then you are allowed R24 800 each interest free of tax, so as long as you aren't earning interest elsewhere, then the next R614 000 of the loan is also not a problem as you can charge interest on it, pay no tax on the interest and the company (owned by the trust) can deduct the interest expense from its taxable income and save R13 300 income tax. If the house is sold to the trust, then the saving on tax for the trust is R21 400. So the bottom line is that this whole matter only becomes an issue when the house is worth more than R3.1m.

Now for the opportunity cost.

R2m allowance before CGT

If your primary residence is registered in your name(s), then upon selling it, you are allowed to make a capital gain of up to R2m before CGT kicks in. This would not be the case if the property is owned by a company or a trust.

 


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