In the classic structure, a newly formed private company (Newco) owns the property and the trust owns the shares in Newco. The company is the legal owner of the bricks and mortar; the trust holds the value through its shareholding; and the beneficiaries receive whatever the trustees decide to distribute. The reasons to interpose a company are practical — ring-fencing the property in its own legal entity, making it easy to bring in co-owners or future properties as a group, and keeping the asset one step further from the founder’s personal creditors.
But the company layer is not free. Whatever the company earns is taxed in the company first, and getting that money up to the trust (and ultimately to the family) is a second taxable event. Before you build it, weigh the company route against owning the property directly in the trust — see trust versus company for the head-to-head.
How the company is taxed: rent and capital gains
Rent received by Newco is ordinary income. Newco deducts the expenses the Act allows (interest, rates, repairs, levies and the like) and pays tax on the resulting taxable rental profit at the company rate of 27% — not on the gross rent. When Newco eventually sells the property, the capital gain is taxed in the company too — and here the rate matters a great deal. A company includes 80% of its capital gain in income and is taxed at 27%, giving an effective CGT rate of 21.6%.
Source — the actual words
25 February 2026 – No changes in percentages but changes to exclusions (see in bold below): Type 2027 2026 2025 2024 2023 2022 Individuals and Special Trusts 18% 18% 18% 18% 18% 18% Companies 21.6% 21.6% 21.6% 21.6% 21.6% 22.4% Other Trusts 36% 36% 36% 36% 36% 36%
Note — These are effective rates. The company figure of 21.6% is the legislated 80% inclusion applied to the 27% company income-tax rate (27% × 80% = 21.6%), following the 2023 reduction of the company rate from 28% to 27%; an older SARS guide still showing 22,4% predates that reduction.
SARS Capital Gains Tax rate table, SARS CGT rate table (updated 25 February 2026) — effective ratesRead it on SARS
The 21.6% is no accident of arithmetic — it is fixed by the Eighth Schedule, which sets the share of a capital gain that is brought into the income that is taxed. A company falls into the “in any other case” 80% bracket, the same inclusion rate a discretionary trust carries:
Source — the actual words
A person’s taxable capital gain for the year of assessment is— (a) in the case of a natural person or a special trust as defined in section 1 of the Act, 40 per cent; … (c) in any other case, 80 per cent, of that person’s net capital gain for that year of assessment.
Note — A natural person (and a special trust) includes only 40% of the gain; a company or an ordinary trust includes 80%. The effective rate is that inclusion rate multiplied by the taxpayer’s income-tax rate — 80% × 27% = 21.6% for a company, 80% × 45% = 36% for a trust.
Income Tax Act 58 of 1962, Eighth Schedule, para 10(1) — inclusion rates (extract)Read it on Law Library
Two points decide whether this is a good or bad place to hold the asset. First, the company effective rate of 21.6% sits below the standard trust rate of 36%, so a company is a cheaper place to realise a gain than a discretionary trust. Second, and against that, a company gets no primary-residence exclusion: the exclusion that a natural person keeps on selling a home (R3 million as SARS publishes it for 2026/27, from clause 16 of the 2026 Draft Rates Bill; promulgated amendment not located — the enacted figure is R2 million) simply does not exist for a company. That single difference is why a home rarely belongs in a company.
The rates that drive the company-in-a-trust decision (2026)
Tax
Applies to
Rate (2026)
Income tax — trust
Taxable income retained in an ordinary trust
45% (flat)
Income tax — company
Newco's rental / trading profit
27%
Income tax — individual
Income vested in a resident beneficiary
Up to 45% (sliding scale)
CGT — trust
Gain retained in an ordinary trust (80% inclusion)
36% effective
CGT — company
Gain in a company (80% inclusion)
21.6% effective
CGT — individual / special trust
Gain in a person / special trust (40% inclusion, on the sliding scale)
Up to 18% effective
Dividends tax
Company pays a dividend upward
20%
Donations tax
Gifts / s 7C deemed donations (25% over R30m cumulative)
20%
Estate duty
Dutiable estate on death (25% over R30m)
20%
Securities transfer tax
Transfer of shares — e.g. shares in a trading company that is not a residential property company. Exempt under s 8(1)(n) of the STT Act where the unlisted security is an acquisition of “property” subject to transfer duty (or a supply subject to VAT) — as it is when Newco is a residential property company and the trust buys its shares
0.25%
VAT
Standard-rated supplies (e.g. commercial property by a vendor)
15%
Official rate of interest
s 7C deemed donation on low/no-interest loans (repo + 1%; 7.75% 1 Dec 2025–31 May 2026; 8% 1 Jun–30 Sep 2026)
8.25% (from 1 Oct 2026)
Transfer duty
Acquiring property — sliding scale
0% to R1.21m … 13% above R13.31m
Last reviewed: 29 September 2026. Rates are South African and time-sensitive. The R150 000 / R20 000 donations-tax exemptions are the figures SARS currently publishes; they come from clause 9 of the 2026 Draft Rates Bill (deemed effective 1 March 2026) and we have not located the promulgated amendment, so treat them as SARS-published rather than quoted statute. The official rate of interest changes with the repo rate, so a section 7C figure must follow the rate for each period. A special trust is taxed on the individual sliding scale (CGT up to 18%), not the flat 45% / 36% that applies to an ordinary trust; the 18% figure is a maximum effective rate, not a flat rate on every gain. Confirm every figure against the current SARS material before acting.
Getting cash out: dividends versus returns of capital
The company pays its tax, but the profit is still trapped inside Newco. Moving it up to the trust is a separate, taxable step. When Newco passes profits up as a dividend, dividends tax of 20% is withheld. The conduit principle that lets a trust flow income through to beneficiaries does not switch dividends tax off — it is a separate, largely final tax on the distribution itself.
Source — the actual words
A dividend is in essence any payment by a company to a shareholder in respect of a share held in that company, excluding the return of contributed tax capital (i.e. consideration received by a company for the issue of shares). … The rate of Dividends Tax increased from 15% to 20% for any dividend paid on or after 22 February 2017 (irrespective of declaration date), unless an exemption or reduced rate is applicable.
Note — The 20% rate is set in section 64E of the Income Tax Act. It is a withholding tax on the shareholder (here, the trust), deducted by the company before the money is paid up. A return of contributed tax capital is carved out of the definition of a dividend, so it is not caught by this tax.
SARS Dividends Tax, SARS Dividends Tax — “What is Dividends Tax?” and “How much will be paid?” (extract)Read it on SARS
A return of contributed tax capital is treated differently. Paying back contributed tax capital is not a dividend, so it is not subject to dividends tax — though it reduces the shareholder’s base cost in the shares, and once it exceeds that base cost the excess is a capital gain (paragraph 76B). And the pool is smaller than people expect: where the property came in under section 42, s 42(3A) fixes Newco’s contributed tax capital at the asset’s tax cost — R2 million on the Nkosi numbers — not its R6 million market value. Keep three records separate: the shareholder’s base cost in the shares, Newco’s contributed tax capital, and the loan account. The loan is owed by the trust to the founder for the shares it bought; Newco owes the founder nothing merely because it holds the property, so “repaying the loan out of the company” needs a dividend or a return of capital first.
The statute spells out both halves of that — the 20% charge, and the carve-out for contributed tax capital that keeps a genuine return of capital outside it:
Source — the actual words
“dividend” means any amount … transferred or applied by a company that is a resident … but does not include any amount so transferred or applied to the extent that the amount so transferred or applied— (i) results in a reduction of contributed tax capital of the company; … [64E.] (1)(a) … there must be levied … a tax, to be known as the dividends tax, calculated— (i) at the rate of 20 per cent … of the amount of any dividend paid by any company other than a headquarter company.
Note — Limb (i) of the “dividend” definition is the contributed-tax-capital carve-out; because dividends tax under s 64E is levied only on a dividend, a return of contributed tax capital falls outside the charge altogether.
Income Tax Act 58 of 1962, s 1 “dividend” (carve-out) and s 64E(1)(a) — dividends tax (extract)Read it on Law Library
The residential-property-company trap on a later share sale
Founders sometimes assume that selling the company later (selling the shares) avoids property transfer duty, because no land changes hands. For a residential property, that is wrong. The law looks through the company: where more than half of a company’s assets are residential property (as the Transfer Duty Act defines it — see the carve-outs below), selling its shares is taxed as if you had bought the property itself.
This is not a SARS view of the law — it is the law itself. The Transfer Duty Act defines a “residential property company” on a more-than-50% test and, in the same breath, folds a share in such a company into the meaning of “property”, so that a transfer of the shares is taxed as a transfer of property:
Source — the actual words
“property” means land in the Republic and any fixtures thereon, and includes— … (d) a share (other than a share contemplated in paragraph (g)) or member’s interest in a residential property company; … “residential property company” means any company, other than a REIT as defined in section 1 of the Income Tax Act, 1962 (Act 58 of 1962), that holds property that constitutes— (a) residential property; or (b) a contingent right contemplated in paragraph (f) of the definition of “property”, and where the fair value of that property or contingent right comprises more than 50 per cent of the aggregate fair market value of all the assets, as defined in paragraph 1 of the Eighth Schedule to the Income Tax Act, 1962, (other than financial instruments as defined in section 1 of that Act or any coin made mainly from gold or platinum), held by that company on the date of acquisition of an interest in that company;
Note — Bringing a share into the definition of “property” (para (d)) is the anti-avoidance mechanism: because transfer duty is levied on the acquisition of “property”, a sale of the shares in a residential property company attracts duty on the same sliding scale as a sale of the land. A share-block-company share (para (g)) is carved out.
Transfer Duty Act 40 of 1949, s 1 — definitions of “property” (para (d)) and “residential property company” (extract)Read it on Law Library
Everything turns on what counts as “residential property”. The definition is wide — a house, holiday home, flat or residentially zoned land — but it has two carve-outs that matter for a rental portfolio:
Source — the actual words
“residential property” means any dwelling-house, holiday home, apartment or similar abode, improved or unimproved land zoned for residential use in the Republic (including any real right thereto), other than— (a) an apartment complex, hotel, guesthouse or similar structure consisting of five or more units held by a person which has been used for renting to five or more persons, who are not connected persons, as defined in the Income Tax Act, 1962 (Act No. 58 of 1962), in relation to that person; or (b) any “fixed property” of a “vendor” forming part of an “enterprise” all as defined in section 1 of the Value-Added Tax Act, 1991 (Act No. 89 of 1991);
Note — Carve-out (a) takes a block of five or more units that has been let to five or more tenants who are not connected persons in relation to the owner out of “residential property”; carve-out (b) does the same for fixed property a VAT vendor holds as part of its enterprise. A company whose property falls within either carve-out is not a residential property company on that account, so a sale of its shares is not a transfer-duty event — though securities transfer tax then applies (see below). A single let house or flat is still residential property.
Transfer Duty Act 40 of 1949, s 1 — definition of “residential property”Read it on Law Library
SARS’s own Transfer Duty Guide restates the definition and confirms the consequence in plain terms:
Source — the actual words
“residential property company” means any company, other than a REIT as defined in section 1 of the Income Tax Act, 1962 (Act No. 58 of 1962), that holds property that constitutes— (a) residential property; or (b) a contingent right contemplated in paragraph (f) of the definition of “property”, and where the fair value of that property or contingent right comprises more than 50 per cent of the aggregate fair market value of all the assets, as defined in paragraph 1 of the Eighth Schedule to the Income Tax Act, 1962, (other than financial instruments as defined in section 1 of that Act or any coin made mainly from gold or platinum), held by that company on the date of acquisition of an interest in that company; [The Guide explains:] The implication is that the supply of any shares or other interests in an entity falling within the scope of this definition is regarded as the supply of “property” which is subject to transfer duty.
SARS Transfer Duty Guide (Legal-Pub-Guide-TD01, Issue 6, 25 July 2023 — predates the 1 April 2025 duty scale), Transfer Duty Guide (Issue 6), para 2.7 — “residential property company”Read it on SARSPDF
So a buyer of the shares in a Newco that mainly holds residential property — including the family trust when it acquires the shares from the founder — will pay transfer duty on the property’s fair value, on the same sliding scale that applies to buying the land outright. The denominator excludes financial instruments and gold or platinum coins, the bond over the property is ignored in the fair value (Transfer Duty Guide para 2.4.6), and where only some of the shares are acquired the duty is worked out on the whole property and then apportioned under section 2(5) (Guide para 7.3.2, Example 18) — not by running the sliding scale afresh on the fraction. On the Nkosi numbers — assuming the property is a dwelling (residential property), so that Newco is a residential property company — the trust’s acquisition of Newco’s shares costs about R437 356 on the transfer-duty scale in force from 1 April 2025 (see SARS’s transfer duty rate table and the Rates and Monetary Amounts Act 3 of 2026; the Transfer Duty Guide’s Issue 6 predates that scale). That can be a significant unbudgeted cost on exit — or on entry. It does not mean a company is wrong — it means you must plan for it, and check whether a roll-over exemption is available. See the detail in transfer duty and the section 42 exemption.
Where the company holds commercial rather than residential property — or property within one of the carve-outs above — that transfer-duty look-through does not apply — but a sale of the shares is still a transfer of a security, so securities transfer tax of 0,25% is levied on the value of the shares. (Forming Newco and issuing its first shares is an issue, not a transfer, so no STT arises on setup — STT only bites once existing shares change hands.)
Source — the actual words
There must be levied and paid for the benefit of the National Revenue Fund a tax, to be known as the securities transfer tax, in respect of every transfer of any security issued by— (a) a close corporation or company incorporated, established or formed inside the Republic; … at the rate of 0,25 per cent of the taxable amount of that security determined in terms of this Act.
Note — STT is triggered by a transfer of an existing security, not by the original issue of shares when Newco is formed. A transfer of shares under another section 42 transaction is exempt (s 8(1)(a)(i)). A plain sale of shares in a residential property company is also exempt — under s 8(1)(n), because the acquisition is subject to transfer duty — so the two taxes are not charged on the same acquisition; a plain sale of other unlisted shares attracts the 0,25%.
Securities Transfer Tax Act 25 of 2007, STT Act, s 2(1) — imposition (extract)Read it on Law Library
When a property company makes sense — and when it does not
The honest position is that a property company beneath a trust earns its keep for some assets and quietly costs you money for others. It makes sense for a let or commercial property (where there was never a primary-residence exclusion to lose, the company’s 21.6% CGT beats the trust’s 36%, and the entity makes co-ownership and growth easy), and for building a group of properties that you will hold long-term and reorganise over time.
It does not make sense for your primary residence or a single long-held personal investment: you would surrender the primary-residence exclusion (R3 million on SARS’s published 2026/27 figure, still a draft-Bill amount) and the individual CGT rate of at most 18%, add a 20% dividend layer on the way out, and walk into the residential-property-company transfer-duty trap on a later share sale.
Frequently asked questions
It depends on what the property is. A company beneath a trust suits a let or commercial property, or a structure you intend to grow into a group. It rarely suits your own home: a company gets no primary-residence exclusion and pays CGT at an effective 21.6%, where you personally would keep the primary-residence exclusion (R3 million as SARS publishes it for 2026/27, from clause 16 of the 2026 Draft Rates Bill; R2 million enacted) and pay at most 18% effective. See whether to move it in.
The company pays 27% on its taxable rental profit (rent less deductible expenses), not on gross rent. On a later sale the capital gain is taxed at an effective 21.6% (80% inclusion × 27%), with no primary-residence exclusion. Passing the profit up to the trust as a dividend then triggers a further 20% dividends tax. The combined company-then-dividend cost is the price of the structure.
No. A company does not avoid CGT — it changes the rate and removes a relief. It pays CGT at an effective 21.6% (lower than a trust at 36%) but loses the primary-residence exclusion a natural person keeps (R3 million on SARS’s published 2026/27 figure, still a draft-Bill amount; R2 million enacted). For a home you would usually pay more, not less.
Two main routes. A dividend (profit up to the trust) carries 20% dividends tax. A return of contributed tax capital is not a dividend and is not subject to dividends tax — but in a section 42 structure that capital is only the asset’s tax cost (R2 million on the Nkosi numbers, s 42(3A)), a return reduces the shareholder’s base cost, and any excess over base cost is a capital gain (para 76B). The loan account is a separate thing: the trust owes the founder for the shares; Newco owes him nothing merely because it holds the property.
Because the law looks through the company. Where its assets are more than 50% residential property, it is a “residential property company”, and selling its shares is taxed as if you bought the property itself. “Residential property” has two carve-outs: a block of five or more units let to five or more unconnected persons, and fixed property a VAT vendor holds as part of its enterprise — a company holding only that kind of property is outside the rule, and its share sale attracts securities transfer tax instead. See the transfer-duty rules and budget for the duty.
Why you can trust this: Martin Kotze has been an admitted Attorney of the High Court of South Africa, registered Conveyancer, and Notary Public since 2014, practising from Pretoria. The firm is regulated by the Legal Practice Council under firm registration 17444.
This guide is general information, not legal advice for your specific matter.
Work with an attorney
Set up or restructure your trust correctly
Martin Kotze drafts trust deeds, registers trusts with the Master, and structures trust-and-company holdings end-to-end. General guidance on this page is not a substitute for advice on your facts.