The question of whether VAT or transfer duty applies when buying property from a developer continues to cause uncertainty among South African buyers. While transfer duty is a well-known tax in resale transactions, residential properties sold by VAT-registered developers are generally exempt from it — and subject instead to Value-Added Tax at a rate of 15%.

This distinction is more than administrative. It changes how the purchase price is structured, how affordability is assessed by banks, and what buyers ultimately pay. Sale agreements must clearly reflect whether VAT is included or excluded, and errors in this regard can lead to costly miscalculations — especially in off-plan or sectional title developments.

The issue stems from the dual tax system applied to immovable property transactions, where VAT and transfer duty operate in parallel but never overlap. Buyers are not expected to pay both, but they do need to understand which one applies — and how it affects their obligations during the transfer process.

As more residential stock is delivered by developers rather than private individuals, the question becomes increasingly relevant: When does VAT apply, when is transfer duty payable, and who ultimately bears the cost?

VAT vs Transfer Duty – What’s the Difference?

Transfer duty is a tax levied by the South African Revenue Service (SARS) on the acquisition of fixed property when the seller is not a VAT vendor. It is calculated on a sliding scale, starting at 3% for properties above R1.1 million, and increasing as the value rises. Transfer duty must be paid before the property can be registered in the buyer’s name, and proof of payment is submitted to the Deeds Office during the transfer process.

VAT, on the other hand, is governed by the Value-Added Tax Act and applies when the seller is a registered VAT vendor — usually a developer or entity selling property as part of its business operations. In these cases, VAT is charged at 15% on the sale price and replaces transfer duty entirely.

A critical distinction is that VAT is built into the purchase price, whereas transfer duty is in addition to the price. This affects everything from how offers are drafted to how much the buyer needs to have available in liquid funds before transfer.

Buyers and even some agents often confuse the two — leading to unexpected shortfalls, especially where a purchase price is mistakenly assumed to be VAT-inclusive when it is not.

When Does VAT Apply Instead of Transfer Duty?

VAT applies only when the seller is a VAT-registered vendor and the property forms part of their taxable supply. This generally includes:

• New residential developments sold directly by the developer
• Off-plan sales in sectional title schemes
• Property owned by companies, trusts, or developers operating commercially

In these transactions, VAT is levied at 15% and must be paid as part of the purchase price. The buyer is technically liable, but most developers include the VAT in the advertised price to streamline sales and avoid pricing confusion.
The wording of the sale agreement is critical. A purchase price marked as “R1,500,000 plus VAT” is vastly different from one described as “R1,500,000 inclusive of VAT.” A failure to understand the difference could result in the buyer being liable for an additional R225,000 — an amount many only discover when the conveyancing process is already underway.

In contrast, when purchasing property from a non-VAT vendor — such as a private individual or investor — transfer duty applies, and this must be paid to SARS before transfer can take place. The conveyancing attorneys handling the registration process will withhold transfer until proof of payment is received and lodged.

Who Pays, and How Is the Cost Reflected?

In both VAT and transfer duty scenarios, the financial burden ultimately falls on the buyer. However, how that cost is communicated and accounted for differs significantly.

With VAT:

• It is often built into the developer’s price, meaning buyers won’t necessarily see it as a separate line item unless the agreement is VAT-exclusive.
• It influences the base price used for bond applications, affecting what the bank is willing to finance.

With transfer duty:

• It is a separate payment, calculated according to SARS’ sliding scale.
• It must be paid in full before transfer, from the buyer’s own funds — not from the bond.

This distinction affects affordability, loan structuring, and how attorneys manage the transfer timeline. Buyers should ensure their financial planning takes both possibilities into account.
For example, a buyer who qualifies for a R2 million bond might be caught off guard when required to pay over R65,000 in transfer duty upfront — whereas the same amount could have been absorbed into the price if VAT applied and was already included.

Implications for Property Finance and Sale Agreements

The tax treatment of a property transaction has a direct impact on the legal structure of the sale agreement and the financial planning required by the buyer. Lenders need to understand whether the property is VAT-rated or subject to transfer duty so they can determine whether the full purchase price will be covered by the bond.

Where VAT is included in the purchase price, the agreement must clearly state that fact. If it is excluded, the buyer may need to secure additional funds or renegotiate the loan terms — delays that can derail a transaction if not addressed early.
Transfer attorneys play a central role in reviewing the agreement, coordinating with the developer, and advising the buyer on what costs are due, to whom, and when. In transactions involving VAT, they will also ensure the correct documentation is submitted to SARS and that the financial structure complies with both the Transfer Duty Act and VAT Act requirements.

Misunderstandings Around VAT and Transfer Duty

Despite their legal clarity, the application of VAT and transfer duty remains one of the most misunderstood aspects of property law — especially among first-time buyers and those dealing with developers for the first time. Some of the most common misconceptions include:

• Believing both taxes apply: In law, only one may apply — never both.
• Assuming VAT is always excluded: In practice, most developers advertise VAT-inclusive prices, but this must still be confirmed in writing.
• Assuming transfer duty always applies: Buyers sometimes pay transfer duty unnecessarily, even when VAT is due, simply because it wasn’t clarified in the sale agreement.

These misunderstandings can cause delays, trigger tax audits, or even result in rejected transfer applications. Buyers are advised to work with qualified property lawyers who can confirm tax treatment before signing any agreement.

Legal Review in Developer Sales

New developments are often marketed as turnkey solutions — appealing, modern, and professionally packaged. But behind the marketing material lies a binding legal agreement, typically drafted in favour of the developer.

Buyers should have the offer to purchase reviewed by conveyancing attorneys or attorneys in Sandton with experience in property development sales. These professionals can ensure:

• The VAT or transfer duty treatment is correctly specified
• The purchase price reflects all payable costs
• Payment timelines are realistic given SARS requirements
• The transfer date aligns with legal obligations

Errors or omissions in this stage are difficult to correct after the fact. Proper legal oversight prevents disputes, ensures regulatory compliance, and protects the buyer’s financial interests.

VDM Attorneys – Conveyancing Attorneys in Sandton 

Thinking of buying from a developer?

Before you sign, have the agreement reviewed by a legal professional who understands the tax and transfer implications. At VDM Attorneys, we assist buyers with contract clarity, compliance, and legal oversight to ensure the property transfer process is handled correctly from the start.

Reach out to our team for experienced legal support in residential and developer property transactions and conveyancing.