According to the 2018 budget speech, there will be a 1% increase from 14% to 15% in the VAT rate effective from 1 April 2018. Here’s a look at what that that will mean for the property market.
There has been a concession made when it comes to residential property transactions. The rate of 14% will still apply according to when the price of sale or construction was determined and stated in the agreement. The transaction must have been concluded (signed) by the parties before 1 April 2018 even if payment and registration only takes place after 1 April 2018.
The concession will only apply to certain types of sales of residential property though. These include freehold; sectional title; share block; plot and plan and the construction of a new dwelling.
These concessions, however, do not apply to commercial property transfers.
How the VAT increase will affect estate agent commissions
As stated above, the VAT legislation determines that the time of supply is the deciding factor with regards to applicable VAT, which makes it pretty tricky when it comes to estate agent commissions due to the fact that the commission is only payable on registration of the transfer.
The only way to deal with the VAT question transparently is to apply a time division to the calculation, for example, if the mandate was granted on 15 March and the sale completed on 15 April then 50% of the commission carries VAT at 14% and the remainder at 15%.
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Picture: The Conversation