Should I Buy a House in My Company, in a Trust, or in My Personal Name?

One of the most common questions we receive is:

“Should I buy a property in my company, create a new trust to hold it, or buy it in my personal name?”

When it is your primary residence and your first home, the answer is, in most cases, straightforward — own it in your personal name. This is largely due to the primary residence exclusion under the Eighth Schedule to the Income Tax Act, which can significantly reduce or even eliminate Capital Gains Tax (CGT) when you dispose of the property.

Why Personal Ownership Is Often the Best Option for Your First Primary Home

•  Primary residence exclusion amount: Individuals enjoy a CGT exclusion of R2 million of the capital gain on the disposal of their primary residence. In addition, the first R40,000 of capital gains (or capital losses) realised in a tax year is excluded from CGT for all individuals.
• Effect in practice: This means that if you sell your primary residence and the gain is less than R2 million, no CGT will be payable. Even if the gain exceeds R2 million, the exclusion substantially reduces the taxable portion.
• Restriction: The property must have been used predominantly (more than 50%) for domestic purposes as your primary residence during your ownership period.
• Why companies and trusts miss out: The primary residence exclusion is only available to natural persons — not to companies or ordinary trusts. This can lead to significantly higher effective CGT rates on disposal if the property is not held in your personal name.

When It Is a Second Property (e.g., for Rental Income)

Once the property is not your primary residence — such as a buy-to-let, holiday home, or second house — the primary residence exclusion does not apply. This changes the tax picture considerably:

• Individuals will have 40% of the gain included in taxable income and taxed at their marginal rate (up to ~18% effective CGT).
• Companies will have 80% of the gain taxed at the corporate rate, resulting in ~21.6% effective CGT.
• Trusts will also have 80% inclusion, taxed at the flat 45% rate (~36% effective CGT).

Where the property is acquired specifically to generate rental income, there are additional considerations:

1. Deductibility of expenses: Costs such as bond interest, repairs (but not improvements), municipal rates, and agent’s commission are deductible against rental income in the year incurred.

2. CGT still applies on disposal: Even if rental income was fully taxable during ownership, the eventual gain on sale remains subject to CGT

3. VAT generally not applicable: Residential property rentals are exempt from VAT, so input VAT on expenses cannot be claimed.

Estate Duty considerations

While CGT is often the focus, Estate Duty can be just as important in long-term planning:

• Personal ownership: The property forms part of your estate and, after the abatement of R3.5 million, may attract Estate Duty at 20% or 25% on the dutiable value above the threshold.
• Trust ownership: The property itself does not form part of your personal estate, but there can be attribution rules and other anti-avoidance provisions that effectively include value back into your estate if not structured properly.
• Company ownership: The property belongs to the company, but the value of the shares you own will form part of your estate for Estate Duty purposes

Key Takeaway

If it is your first home and primary residence, the primary residence exclusion of R2 million makes personal ownership the most tax-efficient choice in most cases.

For second properties or investment properties, the decision should be based on a combination of:

• CGT rates,
• income tax implications for rental income,
• estate planning objectives, and
• asset protection needs.

The correct structure can save substantial tax in the long term — but the wrong one can lock you into unnecessarily high CGT or Estate Duty liabilities.

Disclaimer: This article is intended for general information purposes only and does not constitute professional tax advice. For tailored guidance, please speak to a registered tax practitioner.