Real Estate Investor Magazine South Africa November 2014 | Page 8

ASK THE EXPERTS Q&A Q Q Q Q A A upfront A Celine K asks: I am bequeathing property assets to my children in my will. Are there any issues that should I be aware of when drafting my will? A David Knott of Private Client Trust answers: F irstly, consider how you are married as this influences your capacity to distribute assets after your death. When married in community of property, you only own one half of all assets registered both in your name and of your spouse. Your spouse therefore still remains a one half share owner of any fixed property you have bequeathed to a third party, such as your children. If you have bequeathed your half share to your minor children and there are insufficient monies to discharge the bond, the property will be sold. Please note that few financial institutions will agree to lend to minors. Any property bequeathed must devolve upon the beneficiary free of any mortgage bond. One must ensure there is either bond liability insurance cover or assets held in your estate which are easily realised to discharge this liability. When married in terms of the accrual regime, the calculation to determine which spouse has a claim against the other to equalise the growth of the respective estates, only occurs at death. In a co-ownership situation, you must consider whether your spouse will have occupation rights until death. You can also direct what the circumstances will be for the sale of the property. Q John De Graaf asks: What makes more financial sense when buying houses to renovate and sell at market value? Can I claim the Capital Gains Tax back? A Michael Dryden of the FinServe Group answers: W hen you ‘flip’ properties, the transaction will be treated as normal ‘revenue’ as opposed to ‘capital’, as you are ‘trading’ properties. Thus, the transaction will not be treated as a Capital Gain. The tax payable will be higher, as the entire ‘taxable profit’ is taxable. The ability to claim Value Added Tax on supplies (‘Input VAT’) is available to any taxpayer (individual, company or Trust), registered as a VAT vendor. Thus, VAT recognition will not affect the choice of entity. Trading in your Personal Capacity: You will be subject to Income Tax (not Capital Gains Tax) on a sliding scale from 0% - 40%. Note that the ‘profit’ from this will be added to other income you earn for tax purposes Thus, you will be subject to a marginal rate of 40%. Trading through a Trust: You will be subject to a flat Income Tax rate of 40%. Unless its structure allows the Trust to distribute the taxable profit to its beneficiaries, by taking advantage of the ‘conduit-principle’. Trading though a Company: You will be subject to a flat Income Tax rate of 28%. Unless the entity qualifies for Small Business Corporation tax rates. Q Marieta Louw asks: I want to buy a starter property for a small business in Cyprus without giving a deposit or getting a bank loan. How do I do this? A Jenny Ellinas of Cypriot Realty answers: B ecause of our fluctuating currency it’s sound advice to peg your rate at ZAR15: €1, which gives you enough fat to play with. When you buy a resale property, you need to pay cash. It takes between 6-8 weeks for the banks in Cyprus to approve your mortgage (they don’t have ITC/Experian so they need to build up their own credit profile). Cypriot banks have a very limited appetite for granting expat credit at the moment. Sellers are not prepared to wait for your mortgage to be approved; and will not accept an offer which is ‘subject to’ finance approval. The only way to buy a resale property is to secure finance in RSA or offshore. To buy a new property (falls within a developer’s portfolio); you can secure in–house finance. This gives you an opportunity to hedge the ZAR against the Euro. You will build up a credit history with your bank and can switch to a mortgage with a Cypriot bank later. Do you have a property question you would like answered by our experts? If so, post it on ASK THE EXPERTS on www.reimag.co.za or email [email protected] 8 November 2014 SA Real Estate Investor Ask The Property Experts click here www.reimag.co.za