▶ Tax Guide · Africa Estate Agricultural

Securities Transfer Tax on Farm Share Sales

The tax almost nobody asks about, on the transaction almost nobody knows is available.

A great many South African farms are not registered to a person. They are registered to a company or a close corporation formed decades ago, and that changes what is actually for sale. The parties can sell the land, which attracts transfer duty rising to 13 percent, or VAT where the seller charges it. Or they can sell the entity that owns the land, which attracts Securities Transfer Tax at 0.25 percent under the Securities Transfer Tax Act 25 of 2007, with nothing registered at the Deeds Office at all. The gap between those two numbers is why the question is worth asking. This guide sets out when the share route is genuinely available, the residential property company test that closes it, who is liable and by when, and the reasons the saving is regularly smaller than it first appears.

▣ Key Facts at a Glance

  • Securities Transfer Tax is levied under the Securities Transfer Tax Act 25 of 2007 at 0.25 percent of the taxable amount of a security transferred. A security includes a share in a company and a member’s interest in a close corporation.
  • Where a farm is held in a company or close corporation and the ENTITY is sold rather than the land, the transaction attracts Securities Transfer Tax and not transfer duty. No immovable property is acquired, so nothing is registered at the Deeds Office and the title deed does not change.
  • Transfer duty under the Transfer Duty Act 40 of 1949 rises to 13 percent at the top bracket. Securities Transfer Tax is 0.25 percent. The two are alternatives on a single transaction, never both.
  • The residential property company test reverses the position. Where the fair value of residential property held by the entity, otherwise than as trading stock, exceeds 50 percent of the fair value of all its assets, the share sale attracts transfer duty and not Securities Transfer Tax.
  • On an unlisted security the company whose security is transferred is liable for the tax and may recover it from the acquirer. Payment is due within two months from the end of the month in which the transfer took place.
  • The saving is smaller than it looks. A share buyer inherits the entity’s base cost with no step up, so the latent capital gains tax travels with the farm, and inherits the entity’s tax history, loan accounts, suretyships and employment obligations along with it.
  • A trust has no shares, so the share sale route does not exist for a farm held in a trust. That is a separate exercise with separate advice.

Three Routes Out of a Farm-Owning Entity

Where a farm sits inside a company or a close corporation, the transaction can be built in more than one way, and the tax follows the shape of what was actually sold. The third card is the one that catches people out.

Share Sale: Securities Transfer Tax

The company or close corporation keeps the farm; the shares or member's interest change hands. Securities Transfer Tax at 0.25 percent.

The land never moves. The title deed keeps the same registered owner, the Deeds Office registers nothing, and there is no transfer duty because no immovable property was acquired. What was acquired is a security, and the Securities Transfer Tax Act 25 of 2007 taxes that at 0.25 percent of the taxable amount. This is the route most farm buyers have never heard of, and on a genuine agricultural holding it is usually available. It is also the route with the most hidden cost, which the rest of this guide sets out.

Asset Sale: Transfer Duty or VAT

The entity sells the farm itself. Transfer duty on a sliding scale, or VAT where the seller charges it.

The company sells the land to the buyer and the Deeds Office registers a new owner. Where the seller does not charge VAT, transfer duty applies under the Transfer Duty Act 40 of 1949 on a sliding scale rising to 13 percent at the top bracket. Where the seller is a VAT vendor charging VAT, transfer duty falls away and the VAT rules take over, including the going-concern zero rating that is usually the cleanest outcome of all. The company then carries capital gains tax on its own gain, and getting the proceeds out to the shareholders is a second taxable event.

The Trap: Residential Property Company

Where residential property is more than 50 percent of the entity by value, the share sale attracts transfer duty, not Securities Transfer Tax.

The share-sale route was closed for houses long ago. The Transfer Duty Act treats a share or member's interest in a residential property company, and a contingent right in a trust holding residential property, as property in its own right, so the share sale attracts transfer duty exactly as a house sale would. The test is a value test, not a name: it asks whether the fair value of the residential property the entity holds, otherwise than as trading stock, exceeds 50 percent of the fair value of all its assets. On a working farm the land, water and infrastructure normally dwarf the homestead, so the entity falls outside. On a smallholding with a large house and little land it very often does not. This has to be measured before the route is chosen, never assumed.

The Eight-Step Process

  1. 1. Establish what actually owns the farm

    Ask for the title deed and read the registered owner. A farm in the family for three generations is very often registered to a company or a close corporation formed in the 1980s or 1990s, and the seller may talk about the farm as personally owned out of habit. Where the owner is an entity, ask for the CIPC registration details, the share register or the founding statement, and the identity of every shareholder or member. Where the owner is a trust, there are no shares at all and the share-sale route does not exist; a trust is dealt with by changing trustees and beneficiaries, which is a different matter entirely and carries its own risks.

  2. 2. Measure the residential property company test before anything else

    This is the step that decides whether the rest of the exercise is possible. Value the residential property the entity holds, otherwise than as trading stock, against the fair value of all its assets. Where residential exceeds 50 percent, the share sale attracts transfer duty and the Securities Transfer Tax route is simply not available. Working farms usually fall outside the test comfortably. Smallholdings, lifestyle properties and farms whose land was subdivided away over the years frequently do not. Get the valuation on paper, dated, before either party relies on the tax position.

  3. 3. Do the sums on both routes, including the tax the buyer inherits

    The 0.25 percent against a transfer duty scale reaching 13 percent looks decisive on its own, and it is not. On a share sale the buyer inherits the company exactly as it stands, including its base cost for capital gains purposes. There is no step up to the price paid. The latent capital gains tax inside the company follows the farm to the next sale and the one after that. An informed buyer prices that in, which is why share sales are routinely discounted. Model the after-tax outcome for both sides on both routes before choosing, rather than reaching for the smaller headline number.

  4. 4. Establish what else the buyer is inheriting

    Buying the entity means buying its history: its tax position and any assessments or disputes with SARS, its loan accounts, its suretyships and guarantees, its employment obligations to the people on the farm, its environmental and water compliance record, any litigation, and any lapse in CIPC filings. An asset sale leaves all of that behind with the seller. A share sale does not. This is the real reason a share sale needs a proper due diligence and a set of warranties and indemnities, and the reason the legal cost of a share sale is usually higher than the tax it saves on a smaller transaction.

  5. 5. Confirm the securities and the values that will be declared

    Securities Transfer Tax is charged on the taxable amount of the security transferred. For an unlisted security that is driven by the consideration declared by the person acquiring it, and where no consideration is declared or the amount declared is below market value, the market value applies instead. Declaring a nominal price on shares in an entity holding a valuable farm does not produce a nominal tax; it produces a market-value assessment and an unhelpful conversation with SARS. Have the shares valued properly and declare that value.

  6. 6. Fix who pays and put it in the agreement

    On an unlisted security the company whose security is transferred carries the liability for the tax, and may recover it from the person acquiring the security. That default surprises sellers, because the company is usually still theirs at the moment the liability arises. The sale agreement must say plainly which party bears the Securities Transfer Tax, when it is paid, and what happens if it is not. A share sale agreement drafted from a residential template will not deal with this at all.

  7. 7. Declare and pay within the period allowed

    Securities Transfer Tax on unlisted securities is declared and paid to SARS through the electronic system provided for it, within two months from the end of the month in which the transfer took place. It is a short window and it runs from the transfer, not from the date anyone gets around to the paperwork. Late payment attracts interest and penalties under the Securities Transfer Tax Administration Act 26 of 2007. Diarise it at signature.

  8. 8. Update the company records to match what was sold

    After payment, the share register or the founding statement must reflect the new holders, the directors or members must be updated at CIPC, the beneficial ownership filing must be brought up to date, and the resolutions authorising the transaction must be on file. A share sale that is taxed correctly and recorded badly creates a title problem for the next sale, which will surface years later at the worst possible moment. Close the file properly.

Where This Goes Wrong

  • Assuming the farm is personally owned. Read the title deed before anything else. A seller who has farmed the place for forty years will still describe it as theirs when the registered owner is a close corporation.
  • Choosing the route before testing the residential property company threshold. On a smallholding with a substantial house, the entire tax argument can be the wrong way round, and it is a valuation question with a number attached, not a matter of opinion.
  • Comparing 0.25 percent against 13 percent and stopping there. The latent capital gains tax inside the entity does not disappear because the shares changed hands. It follows the farm.
  • Treating a share sale as a conveyancing job. No transfer is registered, so a conveyancer alone is not enough. A share sale needs due diligence, warranties and indemnities, and someone who does that work regularly.
  • Leaving the liability to the default position. On an unlisted security the company carries the tax with a right of recovery from the acquirer. Say in the agreement who actually pays it and when.
  • Missing the two-month window. It runs from the end of the month of the transfer, not from the day the paperwork is tidied up, and interest and penalties follow.
  • Reasoning from a company to a trust. A trust has no shares. Everything on this page about share sales stops at the trust deed.

Frequently Asked Questions

What is Securities Transfer Tax?

Securities Transfer Tax is a South African tax levied under the Securities Transfer Tax Act 25 of 2007 at 0.25 percent of the taxable amount of a security that is transferred. A security means a share or depository receipt in a company, or a member's interest in a close corporation. It is the tax that applies when ownership of a company changes hands, in the same way that transfer duty is the tax that applies when ownership of immovable property changes hands. The two are alternatives, not additions: a single transaction attracts one or the other, never both.

Why does Securities Transfer Tax matter to a farm buyer or seller?

Because a large share of South African farms are not registered to a person. They are registered to a company, a close corporation or a trust, often formed decades ago. Where the farm is held in a company or close corporation, the parties have a genuine choice: sell the land, or sell the entity that owns the land. Selling the land attracts transfer duty on a scale rising to 13 percent, or VAT where the seller charges it. Selling the entity attracts Securities Transfer Tax at 0.25 percent. On a large agricultural transaction that difference is a material number, which is why the question deserves to be asked properly rather than discovered by accident.

Can I avoid transfer duty by buying the company that owns the farm?

On a genuine working farm held in a company or close corporation, a share sale attracts Securities Transfer Tax rather than transfer duty, and that is a lawful and ordinary way to structure a transaction. It is not avoidance in the pejorative sense; it is a different transaction with different consequences. Two cautions. First, the residential property company test can reverse the position entirely, and it must be measured rather than assumed. Second, the tax saved on the day is frequently smaller than the latent capital gains tax the buyer inherits inside the company, because the base cost does not step up to the price paid. The correct question is not which tax is lower, but which route leaves both parties better off after tax.

What is a residential property company and why does it matter here?

The Transfer Duty Act 40 of 1949 treats a share or member's interest in a residential property company, and a contingent right in a discretionary trust holding residential property, as property in its own right. The consequence is that transfer duty applies to the share sale exactly as it would to a house sale, and Securities Transfer Tax does not. The test is a value test: it asks whether the fair value of the residential property held by the entity, otherwise than as trading stock, exceeds 50 percent of the fair value of all the assets of the entity. A working farm with substantial land, water entitlements and infrastructure normally falls well outside it. A smallholding whose value sits mostly in a large house very often falls inside it. Measure it before choosing the route.

Does a farmhouse on the property make it a residential property company?

Not on its own. Almost every farm has a homestead, and usually workers' housing as well. What matters is proportion, not presence: whether the fair value of that residential accommodation exceeds 50 percent of the fair value of everything the entity owns. On a commercial farm the land, the registered water entitlements, the irrigation infrastructure, the sheds and the implements normally account for the overwhelming majority of value, and the dwellings do not come close to the threshold. The properties where this genuinely bites are smallholdings, lifestyle farms and holdings whose productive land has been subdivided away over the years, leaving a valuable house on a modest remainder.

Who is liable to pay the Securities Transfer Tax, the buyer or the seller?

For an unlisted security, the liability rests on the company whose security is transferred, and the company is entitled to recover the amount from the person who acquired the security. In practice that means the default position points at the entity that the seller usually still controls at the moment the liability arises, with a right of recovery against the buyer. It is exactly the kind of default that should never be left to operate by accident. The sale agreement must state which party bears the tax, when it is paid and by whom, and what happens if it is not paid on time.

When must the tax be paid?

Securities Transfer Tax on an unlisted security must be declared and paid to SARS within two months from the end of the month in which the transfer took place, through the electronic system SARS provides for it. The Securities Transfer Tax Administration Act 26 of 2007 governs the declaration, payment, interest and penalties. The period runs from the transfer itself, not from registration of anything or from the date the parties finalise their paperwork, so it is easy to lose. Diarise the deadline at signature rather than at closing.

How is the taxable amount worked out on an unlisted farm company?

The taxable amount for an unlisted security is driven by the consideration declared by the person acquiring the security, and where no consideration is declared, or the amount declared is less than market value, the market value applies instead. For shares in a company whose main asset is a farm, market value is closely tied to the value of that farm, less the liabilities in the entity. A nominal declared price on shares in an entity holding a valuable farm therefore does not produce a nominal tax. Have the shares valued on a defensible basis, keep the valuation, and declare it.

What is the catch with buying the company rather than the farm?

Three catches, and they are the reason this route is not automatically the right one. The buyer inherits the entity's base cost for capital gains purposes, so there is no step up to the price paid and the latent capital gains tax travels with the farm. The buyer inherits everything else the entity carries: its SARS history, loan accounts, suretyships, employment obligations, compliance record and any litigation. And the transaction needs a genuine due diligence with warranties and indemnities, which costs more in professional fees than an ordinary conveyancing. On a modest transaction those costs can exceed the tax saved outright.

Does Securities Transfer Tax apply if the farm is in a trust?

No, because a trust has no shares and no member's interest, so there is no security to transfer. A trust holds the farm and the people who control the trust change by way of trustee and beneficiary arrangements, which is an entirely different exercise with its own legal and tax consequences, and its own risks where it is done to move value rather than to administer the trust. Where a discretionary trust holds residential property, the Transfer Duty Act treats a contingent right in that trust as property, so transfer duty can apply. A farm held in a trust needs advice specific to trusts; do not reason from the company position.

Do VAT and Securities Transfer Tax both apply to a share sale?

No. The sale of shares or a member's interest is a financial service and is exempt from VAT, so no VAT is charged on the share sale and no input tax arises on it either. That is a genuine difference from an asset sale, where a going-concern sale between two VAT vendors can be zero rated and a purchase from a non-vendor can produce a notional input tax claim for a registered buyer. On a farm where the VAT position is favourable, the asset route can beat the share route even before the capital gains position is considered.

Who should I get to advise on this?

A tax practitioner who actively handles agricultural entities, together with a conveyancer or commercial attorney who does share sales rather than only residential transfers. The residential property company test, the valuation of the securities, the warranties and indemnities on a share sale, and the interaction with capital gains tax and VAT are all technical, and the cost of getting them wrong runs well beyond the tax itself. Africa Estate is a property practitioner and not a tax adviser: we identify the question early, tell you what the entity structure means for the sale, and work alongside your advisers.

Disclaimer: This Is Not Tax Advice

Africa Estate is a PPRA registered property practitioner, not a tax practitioner or a law firm. This guide explains which tax applies to which shape of transaction so that the question is raised early enough to matter, while the deal can still be structured. It does not calculate anyone's liability and it is not a substitute for advice on your own facts. Rates and thresholds change; the figures on this page are reviewed against SARS and the governing statutes at the review date shown above.

Sources & Regulatory References

All statutory references below are current South African legislation as at the page review date. Links go to the relevant regulatory authority where a stable official destination exists.

  • Securities Transfer Tax Act 25 of 2007. Imposes the tax at 0.25 percent on the transfer of a security, and defines what a security is and how the taxable amount is determined. Administered by the South African Revenue Service (SARS).
  • Securities Transfer Tax Administration Act 26 of 2007. Governs the declaration, payment, interest and penalties, including the period within which the tax on an unlisted security must be paid. Administered by SARS.
  • Transfer Duty Act 40 of 1949. Governs transfer duty on the acquisition of immovable property, and brings a share or member's interest in a residential property company, and a contingent right in a trust holding residential property, within the meaning of property. Administered by SARS.
  • Value-Added Tax Act 89 of 1991. The sale of shares or a member's interest is a financial service and exempt from VAT; the asset-sale alternative may be zero rated as a going concern. Administered by SARS.
  • Companies Act 71 of 2008 and Close Corporations Act 69 of 1984. Govern the entity whose securities are transferred, the share register or founding statement, and the filings that follow a change in holders. Administered by the Companies and Intellectual Property Commission (CIPC).
  • Property Practitioners Act 22 of 2019. Governs property practitioners and mandate agreements. Administered by the Property Practitioners Regulatory Authority (PPRA).
  • Financial Intelligence Centre Act 38 of 2001 (FICA). Verification of identity, address and source of funds, which applies to the acquisition of an entity as much as to the acquisition of land. Administered by the Financial Intelligence Centre.

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