Your lawyer’s turn to panic
by Renier Kriek
We have kept you informed of changes from time to time relating to the transfer of residences from Trusts or Companies without payment of Transfer Duty and a roll over of the Capital Gains. The present situation however is unusual in that the Bill presently before Parliament (which provides for considerably greater flexibility) when passed will take effect as of 1st October 2010 i.e. it will apply retrospectively with all the problems that this creates for those who may have arranged matters in accordance with the legislation still applicable after 1st October 2010!We have provided regular updates on the changing tax regime covering the transfer of trust-owned and company-owned residences to their residents. Our readers may currently be relaxed, believing themselves in the middle of a transfer-duty window that expires on 31 December 2011. Alas, no longer.
Company Transfers
The new provisions allow of the transfer from a Company to a person, provided that person (“the acquirer”) was a Shareholder. No date is specified as from when that person has to be a Shareholder, and he can hold as little as one share in the Company. In addition, the residence must mainly have been used for domestic purposes as of 11th February 2009 ordinarily resided in (- thus it cannot be a holiday home) by one or more natural persons, being “connected persons” in relation to the Company, (i.e.not less than a 20% Shareholder). If the Company acquired the residence before the acquirer bought the shares in the Company, then the Base Cost will be deemed to be the cost of the purchase of the shares. If before, then the base cost will be the cost to the Company of the residence plus improvements. The legislation now applicable restricts the acquirer to being the Shareholder plus his/her spouse if owned all the shares in the Company as of 11th February 2009.
Trust
The only requirement is that a connected person i.e. a Beneficiary or Trustee of the Trust, occupies the residence as above set out. No identification is made or required as to who the acquirer should be. It can be anyone. The base cost is the cost to the Trust at that time of the purchase of the residence and its improvements.
Dissolotion of the Company or Trust
In the event that either transfers under 2 or 3 apply, the Company or Trust must be dissolved and terminated within 6 months of such disposal. This is not required under the present legislation and will severely limit the application where family Trusts for instance hold other assets.
Flaws
In my view, this legislation has not been thought through, has serious flaws, and creates an impossible vacuum in the period between its coming into effect and what took place previously. It probably opens a Pandora’s box rather than creating solutions!
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