Are there transfer duty implications for property options in a last will and testament?

05 July 2023 ,  Marilie Beukes 1296

Any person drawing up a last will and testament, and who intends to include an option to purchase any of their properties, should be aware of the transfer duty implications such provision might bring forth. This article intends on discussing the beforementioned implications at the hands of the case of Secretary for Inland Revenue v Estate Roadknight & Another 35 SATC 250 1973 (A).

Section 2 of the Transfer Duty Act, 40 of 1949 states that if a person acquires property by way of a transaction, then transfer duty shall be payable on the value of such acquired property. In the case of CIR v Freddies Consolidated Mines Ltd 1957 (1) SA 306 (A), the court held that the word “acquired” must include the meaning of the right to acquire ownership of a property.

On the abovementioned, it is necessary to determine whether exercising an option to purchase, which is stipulated in a last will and testament, will ratify the Transfer Duty Act and whether the person exercising such a right will be liable to pay transfer duty to the South African Revenue Services.

The above will be discussed at the hands of the case of Secretary for Inland Revenue v Estate Roadknight & Another 35 SATC 250 1973 (A). In this case, Mr. WG Roadknight directed his executors in his last will and testament to grant his nephew, Raymond, an option to purchase two farms and specified movables attached thereto, which were owned by Mr. Roadknight (hereafter referred to as the “testator”).

The will of the testator further made provision that should Raymond not exercise his option to purchase the properties, he would be entitled to share in the residue of the testator’s estate. The residue included the properties for which the option had been given. Raymond exercised the option and paid transfer duty on the purchase price of R24 000 less the amount attributable to the movables included in the sale.

The representatives of the testator’s estate informed the Secretary for Inland Revenue that the fair market value of the properties was R140 000 whereafter the Secretary claimed that transfer duty should be paid on the fair market value of the properties. This reasoning was based on the fact that Raymond acquired the properties through an agreement of sale, which came into existence when he exercised the option.

Raymond, thereafter, obtained an order from the Durban and Coast Local Division wherein the court held that although the option to purchase was granted by the executors of the testator’s will, Raymond’s acquisition of the properties fell within the transfer duty exemptions as stipulated in Section 9(1)(e) of the Transfer Duty Act due to testamentary succession.

The above decision was appealed, and the Appellate Division held that the position of an option-holder is closely equivalent to that of a legatee. The court stated that when a legatee exercises a testamentary stipulated option, such an option cannot be disassociated with the provisions of the will, and the transaction cannot be viewed independently from the testament granting the option. Furthermore, the court held that the exercise of an option is an unequivocal act of adiation (acceptance of a benefit under a will) and the rights thereto originate in and are associated with the will, which only requires the unilateral exercise of the option.

The court ruled that even though a deed of sale was unquestionably concluded by the exercise of the option to purchase, it was clear on the facts that Raymond acquired the properties by testamentary succession. The court further held that Raymond’s rights lie in the testator’s will itself and that the option was merely the procedure by which the testator methodically intended Raymond to inherit and acquire the properties. The appeal was dismissed with costs.

Therefore, it is evident that an option to purchase property as stipulated in a deceased’s last will and testament will be protected by Section 9(1)(e) of the Transfer Duty Act. This provision exempts the person acquiring the property from paying transfer duty to the South African Revenue Services.

Marilie Beukes is an attorney at Miller Bosman Le Roux Attorneys.

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Related Expertise: Property Transfer, Will and Trust