SARS Buy-to-Let Incentive for Property Investors

There is a little-known gem in Section 13 of the Income Tax Act, where SARS has put in place tax incentives for investors in Buy-to-Let properties, as a stimulus to motivate economic growth.

This incentive offers purchasers of residential units the ability to write-off a percentage of the cost of properties acquired after 21st October 2008, which can add up to millions of Rands over the 20-year term.

To qualify:

1. There must be a minimum of five properties in the portfolio at all times;

2. These can be owned by different entities, or in the investor's personal name, so long as the main director or shareholder of the entity is the same person;

3. These must be for trade purposes (none of them can be the investor's private residence or occupied at any stage by the owner);

4. These must be new residential properties, not commercial, and never previously occupied.

5. The units do not have to be situated in the same development or area, as long as they are all located within South Africa.

The benefits are as follows:

Investors can claim back up to 55% of the value of the properties as a tax deduction over a 20-year period. This will form an annual allowance, which will be added to taxable income. The base deduction will apply from Day One.

For example: five properties @ R1 million each = R5 million

55% of R5 million = R2 750 000.00 rebate

Rebate taxed at 45% = R1 237 500.00/20 years = R61 875.00/annual which equates to a monthly reduction of R5 156.25 on tax payable from renting the property out per month.

Should a property be sold before the 20-year claiming period has expired you will need to refund SARS and a professional Tax Advisor will be able to assist you in terms of the calculations hereto.

The incentive is used as a deduction on your personal income tax (or the income tax of your Company should the properties be purchased in this entity). SARS is not offering you a cash-back, you will simply pay less tax.

Please remember: all income from property investments, including rental income, must be declared to the South African Revenue Service (SARS) and is subject to income tax.

Ultimately, individuals need to consider whether it is a sound property investment by taking the location, rental yield, expenses, and other factors into account and seek the necessary advice around the best structure for the relevant taxpayer. This tax incentive is merely a sweetener for a property investment strategy that makes sense regardless.

To view our range of possible investment properties, click here: https://www.hamiltons.co.za/results/new-development/residential/?advanced_search=1

Read our previous article here: https://www.hamiltons.co.za/news/digital-artistry-setting-the-scene-for-bluechip-masterworks/

Subscribe to our newsletters: https://www.hamiltons.co.za/newsletter/

Contact Hamiltons Property Portfolio for all your buying or selling requirements:

Johannesburg (Head Office): 011 463 0155

Cape Town: 021 418-0328

Garden Route: 044 050 3295

Eastern Cape: 076 927 7787

Or email to reception@hamiltons.co.za