When it comes to acquiring property, most buyers think of the traditional route: purchasing the property directly and registering it in their personal name or in a company. But there’s another method that can sometimes offer strategic advantages - buying the company that already owns the property.

Instead of transferring the property itself, you purchase the shares in the company (or members’ interest in a close corporation) that holds the property. This is commonly referred to as a share sale rather than a property sale.

How It Works

• Direct Sale (Traditional Route): The property is transferred from the seller to the buyer in the Deeds Office, attracting transfer duty (unless VAT applies), conveyancing fees, and related costs.
• Share Sale (Alternative Route): The property stays registered in the company’s name. Instead of the property changing hands, the ownership of the company changes - by transferring its shares to the new buyer.

The end result? You own the property indirectly through the company.

Potential Benefits

✅ No Transfer Duty in Some Cases

• Instead of paying transfer duty on the property, you may only pay Securities Transfer Tax (STT) on the shares.
• Depending on the property value, this can represent a significant saving.

✅ Speed and Simplicity

• Because there is no need to lodge documents at the Deeds Office, the transaction can be quicker to finalise.
• The property remains registered to the same entity, avoiding some of the delays and red tape of conventional transfers.

✅ Continuity of Contracts

• Lease agreements, service provider contracts, or financing facilities linked to the company may continue unaffected.
• This can be advantageous if the property is tenanted or part of a portfolio with existing arrangements.

SARS Rule: When Transfer Duty Still Applies

While many buyers are drawn to share transfers for the potential transfer duty savings, SARS has closed the loophole in certain cases.

According to section 1(1)(b) of the Transfer Duty Act 40 of 1949, a company is deemed a residential property company if:

• The fair value of the residential property it owns makes up more than 50% of the aggregate fair value of all its assets (excluding financial instruments). 
• In this case, the shares are regarded as “property” for tax purposes, meaning that a buyer of those shares must pay transfer duty, not just STT.

Example:

If a company owns a residential property valued at R5 million and its other assets total less than R5 million, then more than 50% of its asset value is tied up in the property. Buying the company’s shares would be treated as a property acquisition, and transfer duty would be payable by the purchaser.

This rule is designed to prevent buyers from avoiding transfer duty by simply buying the entity rather than the property.

Risks and Considerations

⚠️ Hidden Liabilities

When you buy a company, you inherit its entire financial and legal history. This includes:

• Tax liabilities (income tax, VAT, PAYE).
• Outstanding debts, municipal accounts, or employee claims.
• Possible litigation or contractual disputes.

⚠️ Financing Complications

Banks are often more comfortable financing a property transfer than a share transfer. Some may not finance the acquisition of shares in a property-holding entity, meaning the deal could require more equity.

⚠️ Ongoing Compliance Costs

Owning property through a company carries ongoing costs:

• Annual CIPC returns.
• Company secretarial work.
• Auditing or accounting requirements.

⚠️ Capital Gains Tax (CGT)

On resale, CGT applies at company tax rates, which may be higher than individual rates depending on the structure.

When Does It Make Sense?

Buying shares in a property-holding entity can make sense when:

• The property is high-value, and transfer duty savings are substantial (and the SARS “50% rule” does not apply);
• The entity has no hidden liabilities and a clean history; 
• The buyer intends to hold the property as an investment, not resell quickly; and
• Continuity of contracts (tenants, suppliers, finance) is strategically important.

Practical Steps Before Buying

1. Legal Due Diligence – Have attorneys investigate the company’s memorandum, shareholder agreements, leases, and liabilities.
2. Financial Due Diligence – Get audited financials, tax clearance certificates, and municipal account histories.
3. Shareholders’ Agreement – Ensure the transfer of shares is properly documented, and amend governance structures if needed.
4. Structuring Advice – Engage with accountants and tax advisors to weigh up transfer duty savings vs. long-term CGT implications.

Final Word

Buying a property via a share transfer rather than a direct transfer can be a smart move - but it’s not without risk. The SARS “50% rule” means that transfer duty savings are not always available, particularly when dealing with residential property companies. The key lies in due diligence and surrounding yourself with the right professionals: conveyancers, tax advisors, and auditors.

At VDM Attorneys, we regularly assist clients with both conventional property transfers and share transactions. If you’re considering buying into a property-holding entity, we can guide you through the legal, financial, and practical implications so that you move forward with clarity and confidence.