9 questions about the VAT increase on property transactions

As we all know, VAT has just gone up by 1% and notifications from service providers are flooding in, informing us that we will now be charged the extra percentage as of 1 April.

But what about VAT and property transactions

1. Is VAT chargeable on residential property rental (as referred to as a "dwelling" in the Tax Act) No. VAT on residential property rental income is an exempt supply. In other words, landlords may not charge their tenants VAT on top of the monthly rental.

2. What happens to offers received by developers before 1 April that only go through after 1 April Do they attract 14% or 15% Section 67A(4) of the VAT Act stipulates that the VAT rate that is effective on the date that a written sales agreement is entered into will apply if it is residential property, if the price is included in the document, if the agreement was signed before the increase date, and if transfer of the property takes place on or after 1 April 2018. In the case of commercial property, the date of registration will determine the VAT percentage.

3. When is VAT chargeable on rentals VAT on commercial property rental is a standard supply and VAT will be charged at 15% from 1 April 2018. But VAT can only be charged if the owner is registered for VAT purposes.

4. What about developers temporarily letting units till they're sold In January 2012, temporary relief was given to property developers, allowing them to rent residential units for three years without having to include VAT. This "relief" has not been extended any further and ceased to apply on 1 January 2018.

5. What about Homeowners' Association levies - do they attract VAT These are exempt from VAT.

6. Is VAT chargeable on letting agents' or property management fees Yes, if the letting agency or the property management company, or the agent themselves is registered for VAT, then the fees charged each month to owners and tenants should include VAT at the standard rate.

7. Can a landlord claim VAT on anything they spend on their property If the property is a commercial property, the landlord is VAT registered and has a valid tax invoice, then they can claim the input VAT.

8. What is the implication for existing commercial property lease agreements VAT vendors will have to increase the VAT component on rentals from 1 April 2018, unless there is a specific agreement that the price cannot be increased due to a VAT hike, in which case 14% VAT will be paid, but the owner will have to account for output tax of 15%. All new agreements signed after 31 March 2018 must reflect the new rate of 15%.

9. Can I get a tax break for improvements made to my property All property owners have to include rental income in their taxable income declared to SARS. But costs such as property management fees, repairs and maintenance, insurance premiums and municipal service costs paid by the owner may be deducted.