Basic costs involved in selling a property in your personal name

Selling your property is a daunting process, especially when you don't know all the facts. It is so easy to lose sight of the escalating costs involved when the emotions of parting with your much loved home, or hard earned commercial property, get in the way of sound financial reasoning... (...and occasionally the unscrupulous real estate agent who wants to take advantage of your naivety!!!!)

Here is a list of the costs to expect when disposing of property in Zimbabwe, with an example to make the explanation more accessible to the laymen out there. (You don't need to be experts in real estate when there are already experts out there to guide you!!!)

1. Market Appraisals: I suggest you get the market value of your property from at least 2, but better 3 Estate Agents so that you have a fair idea of what your property is worth. (...NOT WHAT YOU WOULD LIKE IT TO BE WORTH!!!!) These market appraisals vary from free of charge to up to $150 each. Normally, the market appraisal is done for free if the property is listed with the agent.

2. Commission: The going rate is 5% plus 15%VAT. This is above the recommended minimum scale of fees laid down by the Real Estate Institute of Zimbabwe. The minimum commission a registered Estate Agent is permitted (by law) to charge is 3% plus 15% VAT.

3. Capital Gains Tax on Individually Owned Properties: In Zimbabwe, this is really quite complicated, so try and bear with me...

If you purchased your property before February 2009 (when we dollarised) then there is a flat rate of 5% of the sale price as capital gains tax. There are certain situations where one is exempt or can apply for a rollover...but this is a whole new topic.

If you purchased the property after Feb 2009, then there is a rate of 20% on the gain of the capital from time of purchase to time of sale. Deductions can be made for improvements and costs like transfer fees and commissions paid.

4.  Private Sales: These may seem cheaper as you save yourself the commission, but you will still need to do some form of advertising and if eventually you do need the help of a registered Estate Agent, they will charge you 3% plus VAT of 15% to do the agreement and everything else. My advice is always to seek professional help either through a lawyer, accountant or reputable Estate Agent as this will save you money in the long run.

Let's look at a working example of an average house sold for $200 000 purchased before February 2009

Sale Price $200 000
Commission 5% $ 10 000
VAT 15% on Commission $  1 500
   
Balance $188 500
5% CGT $    9 425
FINAL BAL $179 075

Now if you bought the house in June 2009 for $140 000 and sold it for $200 000

Balance after Commission is still $188 500

Less Purchase Price                     $140 000

Balance                                        $48 500

20% CGT on this                         $9 700

FINAL BAL                                $188 500- $9 700= $178 800

So the two methods come to the nearly same amount. Remember in the second example you will be able to deduct original transfer fees, and improvements made to the property, which will help bring down your tax bill.

 

Cost of selling your property held in a company or trust

If you read my previous blog about selling your property held in a personal name, then you would realize that there are 2 main areas of cost: The Estate Agent's fees (market appraisals and commission) and the Capital Gains Tax.

With the sale of a property held by a company or trust the Estate Agent's Fees still apply, but the Capital Gains Tax varies and there are accountants' fees and lawyers' fees involved.

Capital Gains Tax is payable on the sale of any shares in a company and the rate is 20%. Some creative accountants may find ways to lower this cost, but it is always best to budget on the most expensive outcome, and be pleasantly surprised in the end if the whole process costs you less. So many sellers have the misconception that there is no Capital Gains Tax due when a property held by a company is sold. They often have been incorrectly advised when they purchased the property and thought that the best, and cheapest way to sell their house in the future would be in a company. Please don't make this mistake!

Properties held by trusts do not incur Capital Gains Tax as in effect no sale has taken place. When you sell your property to the new buyers, you cede your rights to the trust and the Trustees and Beneficiaries change, but the owner of the property remains the same, i.e. The Trust still owns the property. As this transaction does not need to be approved by ZIMRA, the Deeds Office or the Registrar of Companies, it is exempt from Capital Gains Tax. Please note that this is the case at the time of writing, and anything can change in Zimbabwe at any time!!!

Finally, you will have to pay accountants' fees for the change of directors in the company and with a trust you will pay lawyers' fees for the cession documents. These charges vary depending on the lawyer and accountant. It is fairly acceptable to ask the buyer to meet these costs, as with these two types of sale the buyer does not pay transfer fees. However, there are some instances when the fees are split between the buyer and the seller. This is negotiated at the time of acceptance of an offer.