Tax Relief EXTENDED to Secondary Residences

The tax relief on offer if you transfer a residence out of a company or trust and into your own name has been extended to secondary residences.

The Tax Laws Amendment Act of 2011 gave companies and trusts until 31 December 2012 to dispose of residences registered to them, if they wanted the transactions to be free of Capital Gains Tax (CGT), Secondary Tax on Companies, (STC) and transfer duties.  This was provided that certain criteria are met.  There have now been some minor changes made to the rules that govern this tax relief.

What has changed?  Previously, the tax relief applied only if one or more natural persons used the property as a primary residence during the period 11 February 2011 untilt he date of disposal.  As a result, the disposal of certain types of residences, such as holiday homes did not qualify for the tax relief because individuals do not generally reside in their holiday homes.

The tax relief also appliedif, within six months of the date of disposal of the residence, the company or trust took certain steps to terminate its existence.  This has now been changed, stating merely that steps must be taken to terminate the entity.

Since the change, holiday homes and secondary homes may now qualify for the tax relief, provided other requirements are met.  It must still be proven, though, that these residences are used as domestic residences and not for business purposes.

The question arises as to whether there is a benefit to moving your secondary residence from the company structure and incurring the cost of doing so.  The long term benefit of transferring your holiday home would be if you decide to live there after you retire and sellyour primary residence.  As your holiday home then becomes your primary residence, you may qualify for Capital Gains Tax relief again, if you dispose of that residence.

It is important that taxpayers ensure that the disposal of a residence from a company or trust is structured int he correct manner, so that they qualify for tax relief.  Therefore, it is advisable that any potential transaction be reviewed by a tax specialist before it is implemented.