Buying a property as an individual is the simplest and cheapest method but a growing number are opting to purchase a property in other legal entities due to the greater protection offered.

But tread carefully, advises Heather Briggs of Shepstone & Wylie Attorneys, and consider the pros and cons, particularly involving tax, of each entity before deciding which best suits your needs.

Buying in your personal capacity involves a simple registration process and negates the added administration of operating a legal entity which may involve auditors, financial statements and resolutions, says Briggs. Another bonus is that transfer duty is charged at a lower rate. The downside, however, is that the property will form part of the individual's estate and will be available to creditors in the event of insolvency.

"Furthermore, if the individual is married in community of property, the property will form part of the joint estate of the couple and will therefore be available to creditors who take action against either spouse. Persons married out of community of property are afforded slightly more security in that each spouse has their own estate and, generally, the creditors may only attach the property of the spouse concerned,'" adds Briggs.

"You may be able to qualify for capital gains tax exceptions on the sale of the property and a rebate if it is used as their primary residence. On the death of the owner the property will form part of their deceased estate and will be subject to estate duty.

Purchasing a property in the name of a close corporation or a company will carry the same consequences except that it is generally cheaper and simpler to form and administer a close corporation than it is a company. The upside is that the property does not form part of the individual's estate but is an asset of the legal entity, and creditors may not take legal action against the individual unless he or she was asked to stand surety.

However, transfer duty will be charged at a higher rate of 8% and will also be charged on the sale of shares or members interest if the company/close corporation is a residential property company, namely, one which owns residential property where the value of the property is more than 50% of the aggregate value of all the company's assets.

Briggs advises that a prospective purchaser should also note that the property will be taxed at a higher rate than that of individuals, as will Capital Gains Tax and there are no rebates on the sale of the property. On the death of the shareholder/member the property does not fall into their estate but rather their share/interest in the entity which will then be subject to estate duty.

www.property24.co.za

27/08/2008