Capital gains tax is one of the few costs associated with selling a property that does not get settled during the transfer process. It forms part of the seller's income tax and is declared in their annual tax return after the sale is concluded. Whether it applies, and how much it amounts to, depends on how the property was used, how it is owned, and what it originally cost.
CGT is triggered when a property is sold for more than it cost. The profit made on the sale, calculated as the difference between the selling price and the base cost of the property, is what SARS refers to as the capital gain. If there is no profit, there is no capital gain and no CGT liability.
Not every sale that produces a profit results in a tax bill either. SARS provides specific exclusions that reduce or eliminate CGT for certain sellers, the most significant of which is the primary residence exclusion. Whether that exclusion applies, and to what extent, determines whether a seller owes anything at all.
CGT does not apply to the sale of a property acquired before 1 October 2001 in the same way it does to later acquisitions. Properties owned before that date use a valuation date value to establish the base cost, rather than the original purchase price. Sellers in this position should obtain specific guidance from a tax practitioner on how their base cost is determined.
For sellers disposing of the home they ordinarily live in, the primary residence exclusion is the most important factor in determining whether CGT applies. With effect from 1 March 2026, the first R3 million of any capital gain made on the sale of a primary residence is disregarded for CGT purposes. This is the first increase to this threshold since 2012, when it was set at R2 million.
For the exclusion to apply, the property must be owned by a natural person, and the owner or their spouse must ordinarily reside in it as their main home and use it primarily for domestic purposes. Only one property can qualify as a primary residence at a time, and the exclusion applies to a maximum of two hectares of land.
In practical terms, a seller who has lived in their home throughout their period of ownership, has not rented any part of it out, and has not used any portion of it for business purposes, and who realises a capital gain of R3 million or less on the sale, will owe no CGT. Where the gain exceeds R3 million, only the amount above that threshold is subject to CGT. For the majority of residential property sellers in South Africa, the primary residence exclusion means CGT is either reduced significantly or does not apply at all.
Where part of the property has been rented out, or used for business purposes such as a home office, the capital gain must be apportioned. Only the portion attributable to residential use qualifies for the exclusion. Sellers who have claimed home office deductions against their income tax in previous years should be aware that this has a direct bearing on how much of the gain qualifies.
Where a property is jointly owned, each co-owner receives only their proportionate share of the R3 million exclusion. A married couple each owning 50% of a property would each be entitled to a maximum exclusion of R1.5 million on their share of the gain.
Where the seller has not lived in the property as their main residence for the full period of ownership, the exclusion is apportioned to reflect only the period of residential use.
Properties held in companies or ordinary trusts do not qualify for the primary residence exclusion at all. The full capital gain is subject to CGT, and at higher inclusion rates than those that apply to individuals.
CHA Properties is not a tax practitioner, and sellers whose situations involve any of the above should obtain advice from a registered tax professional before their sale is concluded.
For sellers where CGT does apply, the calculation follows a straightforward sequence.
The starting point is the capital gain, which is the selling price less the base cost of the property. The base cost is not simply the original purchase price. It includes the purchase price, transfer costs and transfer duty paid on acquisition, professional fees related to the purchase, the cost of qualifying improvements and additions made during ownership, and selling costs such as agent's commission and compliance certificates. Keeping records of these expenditures over the period of ownership directly affects the size of the capital gain and, by extension, the tax owed.
Once the capital gain is established, the annual exclusion of R50,000 is deducted. This applies to every individual in every tax year, regardless of the type of asset disposed of.
The remaining amount is then multiplied by the inclusion rate of 40% for individuals. This means only 40% of the net capital gain is added to the seller's taxable income for that year, not the full amount. That included portion is taxed at the seller's marginal income tax rate.
To put this in practical terms: a seller realises a capital gain of R500,000 on the sale of an investment property. After deducting the R50,000 annual exclusion, the net gain is R450,000. Forty percent of R450,000 is R180,000. That R180,000 is added to the seller's other taxable income for the year and taxed at their applicable marginal rate. The CGT liability is not R500,000 worth of tax. It is a portion of a portion, determined by the seller's overall income for that year.
A tax practitioner is best placed to work through this calculation accurately, particularly where the base cost involves multiple components or the sale falls in a year with variable income.
Read: What You Actually Walk Away With When You Sell Your Property
CGT is not settled during the transfer process. When a property is registered in the buyer's name and the conveyancer releases the seller's proceeds, no portion of those proceeds is withheld for CGT. The seller receives their net proceeds at registration, and the CGT liability is dealt with separately through the normal income tax return process.
Because CGT falls outside the conveyancing process entirely, it is easy to overlook when calculating the true financial outcome of a sale. Sellers should factor it into their planning before a sale is concluded rather than after.
CHA Properties works alongside CHA Law, a conveyancing attorney practice, which means sellers have access to both property and legal expertise under one roof. While CGT advice falls within the domain of a tax practitioner, understanding how a sale is structured, what the proceeds will look like, and what obligations arise after registration are all part of the guidance CHA Properties and CHA Law provide to sellers throughout the process.
If you are considering selling your property and want to understand the full picture before you go to market, contact our team of property practitioners to get started.
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