YOUR MONEY: Getting around donations tax

Question:

My father would like to transfer his primary residence to me and my sister. A lawyer suggested concluding a sale agreement at a fair market value but money never exchanging hands.

Obviously, there would be transfer duties involved and our father would need to declare the sale, but would this all be legal? Would it not be seen as a donation?

— Fat Wallet Facebook Community User

Answer: 

You are correct, this would be considered a donation and hence your father would be required to pay 20% donations tax after the first R100,000.

Further, there aren’t really any ways to transfer the property without triggering either payment from yourselves or tax. Even when your father passes away there will be estate duty on any amount over R3.5m to be paid.

One option is that he donates R50,000 to each of you every year, which you then pay back to him to offset the value of the property. But your best option is to speak to a reputable tax lawyer about the cost of the two only real options.

The first would be the estate duty at passing (remember, he can reduce his estate by R100,000 a year with donations). And second, the structuring of a loan agreement between the parties with a modest interest rate of, say, repo plus 1%, with each sibling paying R50,000 a year back to the father, which he then returns as a donation.

— Your Money team 

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