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Godknows Hofisi
In this article, I explain the costs associated with the purchase or sale of immovable properties such as land and buildings.
I will explain the costs associated with the following scenarios:
Property with title deeds,
Sale or purchase of shares in a company that holds a property,
Property held through cession.
Property with title deeds
This is the most common scenario. In this case, a person (natural or juristic) sells to another person a property he or she holds under a Deed of Transfer, commonly known as a title deed.
The property will be transferred from the seller and be registered in the name of the purchaser. The costs are as explained below.
Purchase price
This is the amount of money the purchaser pays the seller for the property. It is usually a negotiated price. It is advisable to state if it is inclusive of all taxes and charges or not.
Agreement fee
The fee is paid by the purchaser or seller depending on what the parties agree. It is paid to the legal practitioner or conveyancer preparing the agreement. It may also be paid to an estate agency firm preparing the agreement if it is not being done by a conveyancer.
Agency fee
Where a seller engages a registered estate agent to market the property leading to a sale the seller pays the estate agency firm percent five percent of the purchase price as agency fees or commission.
Capital gains tax or CGT
CGT is a tax paid by the seller to ZIMRA if the seller has made a capital gain (loosely called capital profit) upon selling the property. Some taxpayers or transactions may be exempt from CGT.
Conveyancing fees
These are legal fees paid to the conveyancer by the purchaser to transfer the property from the seller to the purchaser. After transfer, the property will be registered in the name of the purchaser in the Deeds Registry.
This cost covers attending to the ZIMRA process leading to the securing of a CGT clearance certificate and then having the property registered in the name of the purchaser in the Deeds Registry. The cost is regulated by the Law Society of Zimbabwe and is currently 3 percent of the value involved.
Stamp duty
Stamp duty is paid by the purchaser to the Deeds Registry. The amount depends on the value of the property but graduates from 1 percent to 4 percent.
Sale or purchase of shares in a company that holds a property
It is common for a property to be registered in the name of a shelf company. Instead of selling the property and having it transferred from the shelf company to the purchaser, parties may agree that the purchaser buys all the shares in the shelf company and therefore effectively controls the property.
It’s indirect ownership. In this case, a company is sold together with the property.
The costs in such a situation are as explained below:
Purchase price as explained above.
Agreement fee as explained above.
Agency fees or commission as explained above.
Capital Gains Tax (CGT) on the shares, not the property. ZIMRA may require a valuation of the shares being sold and the underlying property.
Share transfer costs. Share transfer involves updating the company constitutive or secretarial documents such as share certificates, CR6 for directors, etc, to reflect the change.
Parties usually agree who will bear such costs. The costs are usually paid to the legal practitioner or accountant attending to the changes. Share certificates are an internal process while the CR6 is updated by the Registrar of Companies.
Property held under cession
A property held under cession is one without a title deed. This may have been purchased from a land developer or local authority. The costs are usually as follows:
Purchase price as already explained above.
Agreement fees as already explained above.
Agency commission as already explained above.
Capital Gains Tax where the seller is not a land developer. If the seller is a land developer and the property being sold is treated as the party of his or her stock instead of CGT the seller will be required to charge VAT which is paid by the purchaser together with the purchase price.
Cession fees are normally paid by the purchaser.
They are in two parts. A portion was paid to the land developer to change the cession holder from the seller to the purchaser in the books of the land developer. The second part relates to the services rendered by a legal practitioner or conveyancer to assist the purchaser in securing the cession.
Conclusion
Charges involved in the purchase or sale of a property depend on the situation and parties need to know them before transacting if possible.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B. Compt (UNISA), CA(Z), MBA(EBS, Heriot-Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted at +263 772 246 900 or [email protected]
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