Selling land or other immovable property can be motivated by personal needs or to benefit from property appreciation, sometimes due to financial pressures or to reallocate investments. However, it’s important to remember that such sales can trigger Capital Gains Tax (CGT). Whether farmland, a plot, or other properties, these transactions—no matter how informal—come with tax implications.
Understanding the Sale
The sale of a plot or farm held as an investment differs from regular transactions involving movable goods. Such sales are generally viewed as investment disposals, not ordinary business transactions unless one is specifically engaged in property trading. Since these transactions are usually infrequent, landowners often overlook their tax obligations. Yet, property disposals result in capital gains—essentially, the profit made from the sale. For instance, if you buy a plot for P100,000 and sell it for P500,000, the capital gain is P400,000 before allowable deductions. Let’s explore how tax laws handle CGT.
Capital Gains Tax: How It Works
Capital Gains Tax applies to gains from the sale of immovable property. CGT is calculated on the selling price, deducting the purchase cost, incidental costs, and an inflation adjustment. If the property was inherited, its market value at the time it devolved to you serves as the acquisition cost. The Income Tax Act also allows deductions for costs like fences, driveways, extensions, and disposal fees. Additionally, acquisition costs include incidental expenses, such as tax advice, legal fees, and transfer taxes.
CGT rates use a sliding scale, with a maximum tax rate of 25percent for individuals. For companies, the rate is 22 percentfor resident companies and 30 percent for non-resident branches registered with CIPA.
Additionally, property acquisition triggers transfer duty, assessed in the hands of the buyer. But we’ll save transfer duty for another discussion.
What If You Haven’t Paid CGT?
If you’re wondering about previous disposals where CGT wasn’t paid, that’s for you to decide—or consult a tax expert for guidance. Business advisors may want to share these insights with clients and seek professional tax advice. Notably, CGT isn’t payable in cases where two or more resident companies restructure without a change in beneficial asset ownership.
Need More Help?
We hope you found this article helpful. As always, remember to “pay Caesar what belongs to him.” For more details, feel free to join our free Tax WhatsApp group or learn about our 9 Tax e-books by texting +267 7181 5836 or emailing us at jhore@aupracontax.co.bw. More articles can be found on our website, www.aupracontax.co.bw, under the “Tax Articles” tab.
