Question:
I have been living in the UK and paying tax here for over 10 years. A few years ago I bought property in South Africa with South African funds from my South African bank account. These properties are losing money and I want to sell them, but someone said I would have to pay capital gains tax if the purchase price is more than my now reduced bond amount.

Would I? Either way, how do I renew a relationship with SARS considering I have lived and paid tax in England for so long? Should I have been submitting 'blank' tax returns in my absence? I just want to be legal!

Answer:
South Africa has a residence-based tax regime which means that, generally, people living outside SA don?t get taxed here. However, when it comes to owning property in South Africa, they will be taxed at the source of that income (which is in South Africa). In effect SARS has deemed your property to be a "resident"! So, if any taxes were due on rental income or capital gains made on the sale of the properties, it would be payable in South Africa and not added to your UK income.

On the sale of the properties, capital gains tax (CGT) will be payable only if the selling price less all the costs of acquiring the property and less any improvement or renovation costs is more than the annual allowance of R17 500. Since it is clearly not your home, no CGT exemption of R1.5-million will apply.

The amount of the mortgage bond has nothing to do with CGT. The setting off of a loan monthly or as a lump sum in full settlement does not attract any tax.

You have mentioned that the properties are "losing money", but you haven?t mentioned how. If they are depreciating in value you could end up with a capital loss (sold for less than it was purchased) and no tax would be payable. If the loss to which you refer is that the rental received is not covering the bond and the tenants are causing damage or undue expenses, then that is something else.

If a person receives rental income less any expenses that are not of a capital nature less any interest charged on the mortgage bond, and this amount exceeds the income tax threshold in any given year, then income tax is due and payable in South Africa.

Note that if a person is married in community of property, then 50 percent of any profit goes to the spouse, further reducing the possibility of paying income tax.

If you have been receiving enough income and have not been paying tax then SARS may pick this up when you sell the properties and ask for backdated tax returns. They reserve the right to ask for up to five years in back taxes, so I hope this is not the case!

If you were declaring your SA income in your UK tax returns and paying tax on it in the UK, then any tax you may have paid there will be deductible from any tax payable in SA.

The simple answer on how to register for tax again after a 10 year break from paying tax in SA, is just to register again. SARS have simplified their filing and you can now register online for pretty much everything. Go to www.sarsefiling.co.za and explore their website. It?s very helpful. Best of luck.

acsis Limited is an authorised financial services provider. The response to the question covers some of the issues in a general and factual manner and does not constitute advice. It is important to consult with a financial planner who, after an analysis of the individuals? personal needs, goals and circumstances, will be able to provide comprehensive and appropriate advice.