In South Africa, property remains a cornerstone of wealth creation for high-net-worth individuals and SME owners. Whether you're building a portfolio of rental homes or investing through legal entities, the tax landscape can be both a gateway to growth and a minefield of costly missteps.

Here’s how to navigate the terrain with confidence — avoiding common tax traps while unlocking long-term financial potential.

1. Legal Structures: Choose Wisely, Plan Strategically

Many investors opt to hold property through companies or trusts for reasons ranging from estate planning to liability protection. While these structures offer strategic advantages, they come with distinct tax implications. Companies are taxed at 27% on rental income and face an 80% inclusion rate for capital gains. Trusts, meanwhile, are taxed at a flat 45% and also face an 80% inclusion rate for capital gains, but can distribute income to beneficiaries in lower tax brackets to reduce the overall burden.

Before choosing a structure, consult a tax advisor to align your investment vehicle with your long-term goals.

2. Rental Income: Declare Everything, Deduct Carefully

Rental income is taxable and must be declared to SARS. The good news is that legitimate expenses—bond interest, rates, insurance, and maintenance—can be deducted. But beware: overestimating deductions or failing to keep proper records can lead to audits and penalties.

Treat your rental portfolio like a business. Keep detailed documentation and ensure your tax filings reflect reality.

3. Capital Appreciation: Understand the CGT Rules

Holding property for long-term growth can yield substantial returns, but selling it triggers capital gains tax (CGT). For individuals, 40% of the gain is added to taxable income, with a maximum rate of 45%. Companies face an 80% inclusion rate, taxed at 27%. If the property is your primary residence, you may qualify for a R2 million CGT exclusion.

Plan your exit strategy with CGT in mind—especially if you're selling high-value assets.

4. Short-Term Property Trading: Know When It’s Trading Income

Buying, renovating, and reselling properties is a popular tactic—but profits from short-term property trading are usually treated as trading income, not capital gains. This means they’re taxed at your full marginal rate, which can be significantly higher than CGT.

Also factor in transfer duties or VAT, depending on the seller’s tax status. These costs can eat into profits if overlooked.

5. REITs: A Flexible Entry Point with Tax Simplicity

Real Estate Investment Trusts (REITs) offer exposure to property markets without the hassle of ownership. REITs must distribute 75% of taxable income as dividends, which are taxed at the investor’s income tax rate. Dividends tax does not apply.

REITs provide liquidity and diversification, but investors must still report dividends accurately to SARS to avoid penalties.

Common Pitfalls to Avoid

• Failing to declare rental income
• Misclassifying short-term property trading profits as capital gains
• Overstating deductible expenses
• Omitting to claim qualifying expenses and deductible allowances eg S13 range of allowances
• Ignoring CGT and VAT implications
• Using legal entities without proper planning

Final Word: Build Wealth with Tax Wisdom

Property investment offers powerful opportunities for growth, but only if managed with tax awareness. Whether you're expanding your portfolio or entering the market for the first time, understanding the tax implications of your strategy is essential.

By avoiding common mistakes and seeking professional guidance, you can turn property into a reliable engine for wealth—without triggering unexpected liabilities. Consulting with a tax advisor and staying informed about legislative changes will help you avoid costly surprises and unlock the full potential of your property investments.

Please note that the above is for information purposes only and does not constitute tax/financial advice. As everyone’s personal circumstances vary, we recommend they seek advice on the matter. While every effort is made to ensure accuracy, Nexia SAB&T does not accept responsibility for any inaccuracies or errors contained herein.

Article prepared by: Stefan Diederiks CA(SA)

Registered Tax Practitioner

For any queries or further information, please contact:

•         Mansoor Salee

M: (+27) 82 454 4786| E: mansoor@nexia-sabt.co.za

•         Yousuf Hassen

M: (+27) 82 333 3376 | E: yhassen@nexia-sabt.co.za