Good news for foreigners who own property in South Africa – with a catch

While South Africa’s 2026 Budget introduced tax relief for foreign property owners, non-resident investors remain at risk of penalties, interest, and potential tax exposure for non-compliance.

This was outlined by tax, immigration and cross-border advisory service provider Foreign Buyer Property Solutions.

They said foreign nationals owning property in South Africa, or considering buying or selling local real estate, should note several key announcements in the 2026 Budget that will directly affect their tax obligations.

For international investors, rental income from a holiday home or other property in the local market is treated as South African-sourced income and is therefore taxed by the South African Revenue Service (SARS).

As a result, adjusting the tax thresholds for inflation in the 2026 Budget will affect the amount of income tax payable on rental income from the South African property.

For the year ending February 2027, the Budget provides relief by increasing tax thresholds for individuals under 65 from R95,750 to R99,000. This means total income below R99,000 per annum is exempt from personal income tax.

Where property is co-owned with a spouse, rental income is split equally between the parties, unlike many other jurisdictions where joint filings are required.

This effectively allows a combined tax-free threshold of R198,000 per annum before personal income tax becomes payable.

Foreign Buyer Property Solutions made an important distinction – property owners are taxed on rental profit, not turnover.

“Deductions such as bond interest, municipal charges, levies, insurance and maintenance, to name a few, must be carefully considered to ensure only the correct net profit is declared and taxed.”

The firm urged foreign property owners to ensure they are taxed only on South African-sourced income.

“Holding a non-resident bank account and registering with SARS as a non-resident taxpayer is important, as incorrect classification could expose non-residents to unintended worldwide tax obligations,” it said.

SARS eyes the profit on property sales

Foreign Buyer Property Solutions explained that, when foreigners sell property in South Africa, capital gains tax (CGT) always applies to any profit made on the sale.

“However, South African law allows for an annual capital gains exclusion, exempting the first portion of the capital gain from tax. In the 2026 Budget, this exclusion has increased from R40,000 to R50,000,” it explained.

In practice, this means a seller can realise a profit of R297,500 on disposal without paying tax on it, provided they have no other taxable income in South Africa.

Where spouses co-own the property, the gain is split between them. This effectively doubles the available tax-free threshold to R297,500 each.

“Importantly, foreign property owners are also entitled to deduct costs incurred in acquiring, improving and disposing of the property,” the firm explained.

“These include agent commission, legal fees and qualifying building improvements, to name a few.”

Foreign Buyer Property Solutions noted that the primary residence capital gains exclusion has also been increased in the 2026 Budget, rising from R2 million to R3 million.

“Two points are important here – under certain circumstances and in limited instances, a non-resident foreign national can make use of this CGT exemption. However, caution must be exercised when applying, as it requires expert planning,” it said.

“As the term overlaps with residence principles, incorrectly claiming the exemption may invite broader questions regarding the foreigner’s overall tax status.”

The increased exclusion is beneficial, but it must be applied carefully and with proper consideration of the wider tax position and the factual requirements for treating the property as the applicant’s ordinary residence.

“Note that although both spouses are entitled to the tax-free profit of R297,500 on disposal, the total R3 million CGT exemption is shared between the two spouses,” the firm added.

VAT threshold increase

According to Foreign Buyer Property Solutions, another significant development is the increase in the value-added tax (VAT) registration threshold from R1 million to R2.3 million.

“Those who previously operated close to the R1 million threshold and now fall below R2.3 million may, from 1 April 2026, no longer be obligated to register for VAT,” it said.

This change reduces administrative complexity, compliance costs, and ongoing filing requirements for property owners.

However, while the higher threshold reduces compliance pressure, it may create disadvantages in certain investment scenarios.

“A foreign investor who is not VAT-registered cannot claim input VAT on property acquisitions, renovations, or ongoing operating expenses,” the firm explained.

“This is particularly relevant in commercial property transactions where VAT is charged on acquisition. In such cases, non-registration can result in irrecoverable VAT costs, directly reducing the overall return on investment.”

Foreign Buyer Property Solutions warned that one of the most common compliance errors made by foreign property owners is assuming that if no tax is payable, no filing is required.

Even where rental profits as the only South African income fall below R99,000, or capital gains fall within the annual exclusion, foreign property owners may still need to register as a taxpayer and submit annual income tax returns.

“Rental income does not constitute remuneration from a registered employer. As a result, property owners are generally classified as provisional taxpayers,” the firm said.

“An exception applies where rental from the letting of fixed property does not exceed R30,000 for the tax year.”

If that threshold is exceeded for the 2026/27 period, the taxpayer is required to submit two provisional tax returns.

The first provisional return is due before the last business day of August 2026, and the second provisional return is due before the last business day of February 2027.

Thus, this must be followed by the submission of an annual income tax return, which generally opens for submission in July 2027.

“Failure to submit returns can result in penalties and interest, even where the final assessed tax liability is minimal or nil,” it said.

Foreign Buyer Property Solutions added that while the 2026 Budget provides genuine relief for foreign property investors, this relief applies to liability and not to compliance.

“For foreign nationals investing in the local property market, the greatest risk often lies in failing to structure, register and report correctly,” it said.

“An annual review of your South African tax registration status, provisional tax requirements, capital gains exposure, residence classification and VAT position is essential to maintaining a compliant and defensible cross-border investment strategy.”