How the 2025 Budget Speech Impacts Property Transfer Costs in South Africa

The recent 2025 Budget Speech introduced several tax changes that will have a direct impact on property transactions in South Africa, particularly regarding Value-Added Tax (VAT) and transfer costs. Whether you’re a homebuyer, property investor, or developer, understanding these adjustments is crucial to navigating the evolving property market.

VAT Increase: What It Means for Property Transactions
One of the most notable announcements in the budget is the incremental increase in VAT, which will rise from 15% to 15.5% on 1 May 2025, followed by an additional increase to 16% on 1 April 2026. This adjustment aims to boost government revenue by approximately R28 billion in 2025/26 and an additional R14.5 billion in 2026/27.

For property buyers, this VAT increase could have significant cost implications, particularly when purchasing newly developed properties or commercial real estate from VAT-registered sellers.

How VAT Affects Transfer Costs in Property Transactions
1. Properties Sold by VAT-Registered Sellers
If the seller is a VAT-registered entity (such as a property developer or a business selling commercial property), the purchase price usually includes VAT rather than transfer duty. With the upcoming VAT increase, property prices could rise accordingly, affecting affordability for buyers.

While these increases may seem small in isolation, they can significantly impact large-scale developments or high-value property transactions.

2. Transfer Duty Exemption Threshold Adjustment
To counterbalance the impact of the VAT increase, the government has raised the transfer duty exemption threshold from R1.1 million to R1.21 million. This means that buyers purchasing properties below this threshold will not pay transfer duty, offering some relief for lower to mid-range buyers.

For properties exceeding R1.21 million, transfer duty is calculated as follows:
(Effective 1 March 2025):
Property value ≤ R1,210,000 → No transfer duty payable
R1,210,001 – R1,663,800 → 3% on the value above R1,210,000
R1,663,801 – R2,329,300 → R13,614 + 6% on the value above R1,663,800
R2,329,301 – R2,994,800 → R53,544 + 8% on the value above R2,329,300
R2,994,801 – R13,310,000 → R106,784 + 11% on the value above R2,994,800
Above R13,310,000 → R1,241,456 + 13% on the value exceeding R13,310,000

Key Considerations for Buyers and Sellers
With these changes in mind, both buyers and sellers should take proactive steps to ensure their transactions remain cost-effective and compliant with tax regulations.

Understand Your Tax Liability
Determine whether your transaction falls under VAT or transfer duty, as the two taxes cannot be charged simultaneously. This depends on the seller’s VAT registration status and the nature of the property being sold.

Review Purchase Agreements Carefully
Buyers must confirm whether the advertised price includes or excludes VAT. If VAT is exclusive, the final payable amount may be significantly higher than expected.

Timing Matters
If you’re planning to buy property from a VAT-registered seller, completing the transaction before May 2025 may help avoid the higher VAT rate.

Seek Legal Guidance
Understanding how VAT and transfer duty apply to your transaction can be complex. Consulting experienced property attorneys like NMA Attorneys can help ensure tax compliance, structure your deal optimally, and avoid unexpected costs.

The 2025 Budget Speech brings both challenges and opportunities for the property market. While the VAT increase may drive up costs for some buyers, the higher transfer duty exemption threshold provides relief for others. Staying informed and working with property law experts is essential for making smart, cost-effective decisions in this evolving landscape.

For professional legal assistance on property transfers, VAT implications, and real estate transactions, contact NMA Attorneys today.