What are the tax implications of gifting a home or deposit to your kids?

PUBLISHED 31 DEC 2020   

A residential property is one of the best investments any young professional can make - but saving for a deposit can be challenging in the current economy. 

Fortunately, family members are often willing to assist their children or other younger relatives by providing them with the funds they need for a downpayment. However, both the donor and recipient should be aware of the gift tax implications that may be involved. 

Let’s take a closer look at the SARS tax regulations and how they might affect you. 

Are gifts taxable? 

You may not be accustomed to declaring and paying taxes on the cash you receive from relatives on your birthday or at Christmas time - but when larger amounts are involved a tax may apply. 

  • SARS allows all SA residents an annual gift allowance of R100 000 which is tax free. Any amounts over R100 000 but less than R30 million are taxed at 20%. 

  • If you were to receive R250 000 from a relative in order to buy a home, the first R100 000 would be tax free, with 20% of the balance (R150 000) being taxable. That equates to a R30 000 tax liability. 

  • Gift taxes are due at the end of the next month following the date you receive the gift. For example, if you receive the funds on June 15, you’ll need to file a gift tax declaration and pay SARS by July 31. 

If you receive less than R100 000 as a contribution to your deposit (and the total amount of cash gifts you’ve received in a year is less than R100 000) you won’t be liable for a gift tax. 

The guidelines above should give you a basic idea of how much you might owe in the form of gift or donation tax. It’s always advisable to consult with your accountant if you’re in any doubt as to your tax.

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Image Credit: https://pixabay.com/photos/taxes-levy-play-dough-tax-office-1015399/