Everything you need to know about owning property as a company
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Owning property in a company has some distinct differences from owning property as an individual. To get the lowdown on everything you need to know, we spoke to Jeremy Craig, our Jawitz Properties Sandton branch manager and Shira Bloch, a director at Faurie Nell Incorporated, a law firm based in Johannesburg. The duo provided insights on an array of scenarios ranging from the differences between buying property as a "natural person" and as a business, to what happens to property in the event of the dissolution of the business.
The difference between buying property as a person, a company and a trust
"The costs of acquisition are the same in all three scenarios," explained Craig, "but the holding costs and the costs incurred on sale differ greatly, with the costs for both companies and trusts being higher."
To this, Bloch adds that a natural person owner's property is vulnerable to his or her creditors. "On the other hand, ownership via shares in a company or being the beneficiary of a trust offers varying degrees of protection," she said. "This is because the property does not become part of the shareholder or beneficiary's estate."
Raising a home loan as a business
Bloch explained that a South African business can raise a home loan, provided that they can meet all the lender's requirements. "Over and above this, the business owners will need to stand surety for the debt in their personal capacity," she shared. "In most instances, a lender will also require the business to put down a deposit."
"It is important to know that trading entities will need to have been running for at least two years prior to a home loan application being made," added Craig. "Affordability will be based on the net profit of the business, and the lender will usually require two years of audited financial statements and updated management accounts."
Advantages and disadvantages of buying a property as a company
Craig points out that the biggest advantage is that the property is removed from the personal estate of the shareholder. "This offers protection from the shareholder's creditors," he elaborated. According to Bloch, the disadvantages, on the flip side of the coin, include that the company needs to file its financial returns annually in order to remain an active company. "As a result, the shareholders need to remain engaged with the company's administration."
It is also important to bear in mind that upon the sale of the property, the Capital Gains Tax payable will be higher than it would have been if it was a natural person selling the property. "Over and above this, a natural person enjoys a residentially occupied owner exemption on the first R2 000 000 profit, which a company will not," pointed out Bloch. "For a business, 80% of the profit made on the sale of a property is taxable at a flat rate of 28%. In the case of a trust, this jumps to a flat rate of 45%."
What happens in the event of the dissolution of the business or the death of a shareholder?
"If a company that owns a property is dissolved, it is advisable that the company transfer any property it owns to its shareholders or a buyer before deregistering the business. "Once the company has been deregistered, any property that has not been disposed of will become vested in the estate," explained Craig. "In the event of the death of a shareholder, his or her shares will vest in the estate and be distributed to the nominated heir. The company has perpetual existence, provided that it maintains its duty of filing its annual financial returns with the Companies and Intellectual Property Commission (CIPC)."
For more information about owning property as a business and the implications thereof, do not hesitate to contact Jawitz Properties. Our property practitioners are here to assist in every property sale and purchase - whether it's being carried out by an individual or by a business.
Author: Jawitz Properties
