Rental property offers financial gains and excellent, inflation-beating ROI (return on investment). However, you need to take care of your property ownership expenses, particularly taxes. Property tax in South Africa is a big potential cost for property investors. There are several helpful ways to reduce your tax load, and we’ll explore 7 core tips to reduce your property’s tax liability.
The property tax landscape in South Africa
South African investors need to pay taxes on certain parts of their investment properties, from rental income to the capital gains tax on property. Capital gains tax is only due when you sell your rental property and turn a profit, which is why we recommend retaining your property for as long as possible.
With these 7 tax savings tips under your belt, you can reduce your tax expenditure and safeguard your ROI.
TABLE OF CONTENTS
- Make use of Section 13 Sex Tax Act
- Leverage “Other People’s Money” (OPM)
- Capitalise on rental property deductions
- Understanding the tax on the sale of property in South Africa
- Make use of new/updated tax laws
- Partner with property experts
- Form company and/or trust structures to maximise tax efficiencies
1. Make use of Section 13 Sex Tax Act
“One of SARS’ dirty-sounding little tax secrets is the Section 13 Sex Act, which allows investors to enjoy a significant tax benefit” – Jacques Fouché, IGrow CEO & Founder.
This “Sex Act” (we hear you sniggering, but ‘sex’ is just a Latin number in this case!) lets residential unit purchasers (investors) write off a percentage of the cost of buildings, (or the improvements/renovations thereof), purchased or built after 21 October 2008.
The following rules apply:
a) The taxpayer has to own at least 5 residential units. A “residential unit” means a “building or self-contained apartment”, predominantly for rental accommodation. Buildings used for business pursuits, like hotels, are excluded.
b) The units must be located in South Africa.
c) These residential units have to be new as well as unused. (To illustrate this, people who purchase flats that were previously occupied won’t qualify for this dirty little secret.). OR they have to have been substantially renovated and upgraded.
d) The units must only be used for residential letting. This rules out the possibility of taxpayers putting in claims for personal use. (Source)
Under this “Sex Act”, investors who own 5 + residential rental properties are allowed to claim an annual depreciation allowance of 5% of the cost of each building (excluding land costs).
Who knew the “Sex Act” could be quite so liberating to all involved? This “dirty little Sex Act secret” is one we are happy to share with you, so you can reap the rewards too!
How do investors save with the “Sex Act”?
- It decreases taxable rental income.
- It incurs cumulative savings, which gather momentum over time. It is specifically beneficial for investors with multi-property portfolios.
IMPORTANT NOTE: making use of this particular advantage is quite a technical business, and it’s essential to seek expert advice on whether it’s best to take this route as an individual taxpayer, or, for instance, to form a company. Timing is also crucial as there are time restrictions and conditions attached to this tax break.
2. Leverage “Other People’s Money” (OPM)
Jacques Fouché, IGrow’s Founder and CEO, highlights the benefits of leveraging OPM to create further wealth and help you decrease your tax liability.
If you finance your buy-to-let investment property purchases using home loans, you can also benefit from tax-deductible interest payments on your bond.
This doesn’t apply to primary residences, which is why few people know about it.
Why does this work for investors?
- Financing your property purchase decreases your upfront costs, making your property investment viable.
- Interest on your bond can be deducted from your rental income, decreasing your tax load.
- Leveraging OPM means you can diversify your property portfolio, raise your rental income, and lower the financial risks associated with property ownership.
3. Capitalise on rental property deductions
Rental property tax in South Africa means property investors can deduct certain property management expenses. Here are some examples you can check with your accountant – so have your paperwork handy!
- Municipal Rates & Taxes: including water and electricity rates, and levies.
- Maintenance and Repairs Costs: non-capital expenses that help maintain the property, e.g. replacing a broken tap
- Property Insurance: coverage for damages, burglaries, and liability.
- Bond Interest: interest payments tied to home loans offer a tax-saving benefit.
- Agent Fees: costs linked to rental agents/property managers.
We’d like to share a top tip: Keep your property-related expenses well-documented and hold onto your invoices and receipts. Store them in date order, somewhere safe. This is critical for SARS compliance. IGrow’s rental management team and property maintenance services can help make this a breeze!
4. Understanding the tax on the sale of property in South Africa
In the event of a property sale, you will pay capital gains tax on property in South Africa. How is this calculated? It’s worked out using the profit made from your sale as a base point, which can reduce your overall profit in the long run.
How can you reduce Capital Gains Tax?
For rental properties, you can deduct the property’s transaction costs, including legal costs and agent commissions. You can also claim deductions on renovation or capital expenses (such as improvements made to the property).
5. Make use of new/updated tax laws
Keeping in touch with South African tax law amendments and changes is a game-changer for property investors. Let’s look at an update from this year that will benefit property investors:
Reduction in Transfer Duty fees: Properties that fall under the R1.1 million price bracket, are exempt from transfer duty as of this year (2025).
Purchasing entry-level properties for investment purposes is therefore cheaper. Tax on the sale of property in South Africa will vary depending on the property sale price.
6. Partner with property experts
Navigating property tax in South Africa is tricky. If you partner with experts such as IGrow Tax and Accunting Advisory, their property tax specialist accountants will help you optimise any savings.
IGrow services include:
- Tax Planning & Compliance: our team makes sure investors make use of all the available tax deductions.
- Bond Origination Services: we help investors lock down optimal financing options and offer advice on the best way forward regarding financing.
- Property portfolio structuring: We tailor your property investments to capitalise on the Section 13 Sex Act, mentioned above, for enhanced benefits and to reduce tax liabilities.
7. Form company and/or trust structures to maximise tax efficiencies
With the correct structures in place, you can pay much lower taxes on your property portfolio. This is a big topic on it’s own, and definitely requires expert guidance and set up, but it is one of the key ways the wealthy protect their investment income.
You can attend one of our online webinars on tax and trusts to learn more about this important topic.
Key Takeaways
Taxes are part of property investment and can’t be avoided, but if you use key strategic tools, and with the correct guidance, investors can reduce their tax load. Be it, leveraging capital gains tax on property in South Africa, grasping rental property tax in South Africa or using the Section 13 Sex Act tax law benefits- there are a variety of ways to lower your tax output.
With IGrow Wealth Investments, you will be tax-efficient, and tax compliant. Working with IGrow’s tax experts means you can structure your property sales and decrease the tax on sale of property in South Africa, regarding liabilities. Our Bond originators will help you secure competitive rates, aiding investors to boost their borrowing power and minimise tax liabilities.
Our overall team offers you regular updates plus advice on new laws and how they impact property investors. This approach to leveraging OPK (Other People’s Knowledge) helps you stay informed about tax strategies. You will be kept in the loop of the latest tax amendments and changes, and we will help you navigate the complexities of taxation laws concerning your properties. This is, in turn, how you can get the lowest tax output possible at the end of the day.
Contact IGrow’s Tax and Accounting Advisory today and learn more about how you can save on your taxes and optimise your property investments.
