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Repo hoses

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Wizard
Super Contributor
Is it possible to buy a repo house and sell it immediately afterwards for a profit without ever registering it on the buyer's name? Layers charge a lot of money so could the registration costs be avoided that way to maximise the profit??
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12 REPLIES 12
striker
Super Contributor
..I dont believe it's possible - you cannot pass title , and recieve the proceeds without the property being registered in your name. this might have been possible many years ago - that loophole has been closed for many a year.
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SimonPB
Valued Contributor
wiz, essentially you don't want to buy the house, you want to buy the option on the house, and then sell the option. That is possible.
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THRESHOLD
Super Contributor
If SARS deems this to be a scheme to avoid transfer tax' you will pay double transfer fees + penalties. If you register for VAT and trade in properties you can reclaim the transfer fees against vat on resale as an input.
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Wizard
Super Contributor
That Option is a forward contract that u make with the bank that sells the property right?
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Wizard
Super Contributor
good point ...
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SimonPB
Valued Contributor
ya, you pay a non refundable fee to the bank and you agree to buy within a certain time at a certian price .. it is a non binding agreement in that you can walk away, but you don't get the deposit back ..
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olilau
Frequent Contributor
i do not believe there would be a deemed transfer duty as the intention is clearly to generate profit by selling the option (house) to an incumbent buyer who then will pay transfer duty. however, the profit of the initial buyer/reseller will be taxed at your marginal rate, not capital gain, as you are effectively trading. what would be interesting is how failure to sell the option is handled, because that is obviously governed by the contract with the seller, not the bank.
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Not applicable
In both cases you looking at a tripartite agreement. With Property you can no longer achieve this since I think 2001/2002 tax years, as indicated that loophole was shut tight and bolted down with 20 headed watch dog guarding the entrance... Best way is like said register for property trading and VAT etc and do it that way but even then you cannot get away from the 3 way transfer. Minor structures to use if you want to "reduce" liability but these have to be set-up very very strictly to avoid hassles with SARS.
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Hibiscus
Regular Contributor
Simon who can I contact/ Website
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Not applicable
Hi, options in this case would see you acting something like an agent, then you start falling under the rules of the estate agency affairs act and all the legalities under that.
Options on property fall into the same loop that was killed by SARS with the ousting of the Tripartite agreements of old days where you buyer B would "buy" a property from seller A and the "sell" it to buyer C. Thus A would transfer to C and B would pocket the profit in the middle.
Now you have to transfer A to B to C and so on (ABC rule). Unless you are a developer and have the land on "consignment" and you do the building to sell the "package" to a buyer you still cannot bypass the ABC rule. Even with "consignment land" the ABC rule applies.
Seller as a trader would see the profit in your tax margin and not capital gains. Capital gains only valid after 3 year continuous ownership and you have to personally live in the property for more than 8 months of the year. So we back to the registered vendor and VAT (but VAT registration a little more tricky these days especially on property trading) to deduct your costs etc but then then run into a new problem,
you are now a VAT vendor, you buy with transfer duty (0% upto R500K, 5% over R500k uoto R1 mil and 8% over R1mil plus 25K) and can recover that as expenses, but you have to sell with 14% VAT from R1......problems problems, like I said you can structure it but the rules are very very tight to avoid tax and avoidance issues etc...
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SimonPB
Valued Contributor
no contact or website I know of .. it is essentially options and you need to engage the banks ..
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Not applicable
CPS is right - the loophole was closed. It is even being closed tighter with the new law eliminating the "voetstoots" clause.
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