The advantage of buying property under a company name

Buying a property as a company rather than as a natural person brings its own rules and regulations. What are the advantages and disadvantages?

Article summary

  • The purpose of buying a property as a company is usually to generate income through buy-to-let.
  • If you sell a property as a company, you don’t pay transfer duty if the company is VAT registered, but you may pay more in Capital Gains Tax.
  • It’s important to know that banks don’t grant home loans to legal entities.

Though in most cases properties are purchased by a ‘natural person’, there is the option of purchasing as a company, which is a process with its own rules and regulations. What do you gain from doing so, and more importantly, what do you lose?

Why buy a property under a company name?

Usually the purpose will be to generate income for the company through buy-to-let. There’s not much purpose to buying a property through a company if you plan to live in it.

The benefits

So if you have a business plan for the property, you buy it as a company and perhaps later sell it. If you sell as a company, you:

  • Pay no transfer duty if the company is VAT registered.
  • Incur no estate duty, as a company is not a person and thus cannot pass away.

Owning the property under a company name also provides some financial protection. The home can’t be taken away from you if you incur financial struggles, as is the risk when you own a property as an individual.

Drawbacks: Capital Gains Tax

On the other hand, selling a property as a company means you’ll probably have to pay higher Capital Gains Tax (CGT).

Capital gains tax is a tax on the difference between the price an asset was purchased for and the amount for which it was sold. So if you’re a property seller, you can find out what your capital gains are, by subtracting the base cost of the property (which includes incurred costs such as renovations, transfer costs and attorney fees) from the amount you sold it for.

For individual homeowners, capital gains on a primary residence (the residence in which the home seller lives) are excluded up to a rate of R2 000 000.

What about the home loan?

Here’s where buying a property through a company gets complicated. Banks will not grant a home loan to a business entity.

So if you’re applying for a home loan, you’re going to have to do so as an individual. O-YES Home Loans, South Africa’s largest home loan comparison service, can assist in this by submitting your home loan application to multiple banks, so you can compare packages they offer and secure the best deal.

If you are just thinking about buying a home, or are ready to put in an offer, O-YES Home Loans gets you the best deal on your home loan – for free. To make the home-buying process that much easier, O-YES Home Loans also offers a range of home loan calculators to help make the home-buying process easier. Get prequalified for a home loan with O-YES Home Loans, then, when you’re ready, you can apply for a home loan with O-YES Home Loans.