There are a few catches though . For example , perhaps you initially rented out the property but then moved in to live there permanently before selling it . In that case , the R2 million allowance must be divided proportionately between the period you rented it out and the period you lived there . And you won ’ t be able to claim that first portion as tax free .
Another instance is where you claimed a deduction for a part of the property used for business , such as a home office . You will also have to subtract this part from the allowance . Trusts and c ompanies , on the other hand , pay tax on 80 % of their capital gains and don ’ t benefit from a primary residence allowance . This seems , on the face , to provide valuable incentives not to own your primary residence through an entity . However , the estate duty implication and the effect on the cost of administering your estate should also play into the consideration of the correct structure . Secondary properties , such as a holiday home , also don ’ t benefit , even if you do reside there occasionally .
When you pass
When you die , you will have to pay estate duty on the value of your estate above R3.5 million , rendered unto SARS by your estate administrator . Any property disposed of at this time will attract CGT , and the same exclusion allowance is applied to your primary residence .
If your estate cannot cover your debt or tax obligations , your property may be sold to raise the necessary cash .
There are several methods to protect your property against such a loss . You could take out extra life insurance to cover the tax liability . Or , you could sell your property to an estate planning vehicle , such as a trust or a company , at the earliest opportunity , in order to cap your eventual tax liability .
Although you ’ ll pay CGT on the profit from that sale , any future property value increases will be on the balance sheet of the entity , not your own , thereby escaping an otherwise increasing estate tax liability . And since trusts and companies don ’ t die , you can avoid CGT in perpetuity when you do - to the advantage of your beneficiaries , of course .
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