A seller rings about a farm he has worked for thirty years. He talks about it the way anyone would talk about their own place. Then the title deed arrives and the registered owner is a close corporation his father formed in 1987, and the conversation quietly becomes a different one, because what is for sale is no longer only a farm. It is a company that happens to own a farm.
That distinction is worth real money, and most sellers never hear about it until it is too late to use.
Two transactions, two different taxes
Where an entity owns the land, there are two ways to do the deal. The entity can sell the farm, in which case the Deeds Office registers a new owner and transfer duty applies on a sliding scale, or VAT does where the seller charges it. Or the shareholders can sell the entity, in which case the land never moves at all. The title deed keeps the same registered owner, nothing is registered anywhere, and the transaction attracts Securities Transfer Tax under the Securities Transfer Tax Act 25 of 2007 instead.
Securities Transfer Tax is charged at a small fraction of a percent. Transfer duty at the top of its scale is many times that. On a commercial farm the gap between the two is not a rounding error, it is a number worth having the conversation about before an offer is signed rather than afterwards.
The test that turns it around
This route was closed for houses a long time ago. The Transfer Duty Act treats a share in a residential property company as property in its own right, so selling that company attracts transfer duty exactly as selling the house would.
The test is a value test, not a name. It asks whether the residential property inside the entity is worth more than half of everything the entity owns. On a working farm the land, the registered water and the infrastructure normally dwarf the homestead, so the entity falls outside it comfortably. On a smallholding whose value sits mostly in a large house, or on a farm whose productive land was subdivided away over the years, it very often does not. Nobody should guess at this. It is a valuation with a number attached, and it needs to be on paper and dated before either side relies on the tax position.
Why the saving is smaller than it looks
Here is the part that gets left out of the pub version of this advice. A buyer who takes the shares takes 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 stays inside the company and follows the farm to the next sale and the one after that, which is why an informed buyer discounts a share sale rather than paying a premium for it.
The buyer also inherits everything else the entity carries: its history with SARS, its loan accounts, its suretyships, its employment obligations to the people living on the farm, and any dispute it has ever had. An asset sale leaves all of that behind with the seller. A share sale does not, which is why it needs a proper due diligence with warranties and indemnities, and why on a smaller transaction the legal cost can exceed the tax it saves.
A trust is a third case again. A trust has no shares, so there is nothing to transfer and none of this applies. That is its own exercise with its own advice.
What to do about it
Read the title deed first, before the price is discussed. If the registered owner is a company or a close corporation, say so early and get the question in front of a tax practitioner while the deal can still be shaped. After an offer is signed the choice has usually already been made by default, and the default is rarely the best of the available outcomes for either party.
The full guide sets out the rates, the residential property company threshold, who is liable for the tax, the period within which it must be paid, and the eight checks to work through before choosing a route: Securities Transfer Tax on Farm Share Sales. In Afrikaans: Sekuriteitsoordragbelasting by Plaasaandele.
Africa Estate is a PPRA registered property practitioner and not a tax practitioner. We raise this question early, while it can still change the outcome, and work alongside your own advisers on the answer.
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