As previously reported, the 2026/27 Budget incorporates a notable change to the tax treatment of the disposal of residential property in South Africa: Increasing the primary residence capital gains tax (‘CGT’) exclusion from R2 million to R3 million.

A tax win for property owners
Providing welcome tax relief, the first R3 million of the capital gain realised on the disposal of a taxpayer’s primary residence – on or after 1^st March 2026 – will now be disregarded for CGT purposes.
For STBB Director and Sandton-based real estate attorney, Anastasia Haji-Pavlou, the increase signifies an important win for property owners. ‘For many homeowners, it could substantially reduce the capital gains tax triggered when a property is sold.’

According to the National Treasury, the adjustment forms part of broader tax measures aimed at mitigating bracket creep and easing financial pressure on households. Specifically, the Budget also proposed increasing the annual CGT exclusion for individuals from R40 000 to R50 000, while the exclusion of a capital gain or loss on death rises from R300 000 to R440 000.

‘Viewed in combination, these revisions recognise that inflation and property price growth have gradually eroded the real value of existing tax thresholds,’ Haji-Pavlou explains. ‘As property values increased over the past decade, more homeowners – particularly those in major metropolitan areas – began exceeding the R2 million threshold simply because their homes appreciated in value,’ she remarks. ‘In this light, the increase is intended to restore some of the tax relief originally provided by the exemption.’

Accordingly, the increase could significantly reduce — and in some cases eliminate — the tax payable when selling one’s home.

Understanding capital gains tax on property
Under the Income Tax Act, CGT applies when a taxpayer disposes of an asset and realises a capital gain, which is generally the difference between the proceeds from the sale and the asset’s base cost.
‘For residential property, the base cost is not limited to the purchase price,’ says the experienced conveyancer. ‘Certain transaction costs and qualifying improvements may also be included when calculating the capital gain.’

Indeed, the base cost typically encompasses the cost of acquiring the property, namely the purchase price, transfer costs, transfer duty, and professional fees, the cost of certain improvements, alterations, and renovations, as well as the fees associated with disposal, such as agent’s commission and advertising costs.

Once the capital gain is determined, it is not taxed in full. Instead, 40% of the capital gain is included in the taxpayer’s taxable income, and that amount is then taxed at the individual’s marginal income tax rate.

‘At the current top marginal tax rate of 45%, this produces a maximum effective capital gains tax rate of 18%,’ Haji-Pavlou notes. ‘In essence, only 40% of the gain is included in taxable income, assuming the taxpayer falls within the highest marginal tax bracket.’
The primary residence exclusion, however, can significantly reduce the taxable gain.

The primary residence exclusion
Under South African tax law, a taxpayer may disregard a portion of the capital gain realised on the disposal of their primary residence.

As the Johannesburg real estate expert clarifies, ‘The primary residence exclusion is one of the most important relief mechanisms within the CGT framework because it recognises that a family home is not simply an investment asset.’

To qualify, the disposal must meet certain requirements:
The property must be ordinarily occupied as the taxpayer’s main residence.

Only one property may qualify as a primary residence at a time.
The exclusion only applies to up to two hectares of land used primarily for domestic purposes.

Any capital gain above the R3 million threshold remains subject to CGT.

‘For example,’ Haji-Pavlou explicates, ‘if a homeowner realises a R4 million capital gain when selling their primary residence, the first R3 million would be disregarded and the remaining R1 million would potentially be subject to CGT.’

Where spouses are married in community of property, the property is typically owned jointly and the capital gain is split equally between them.

‘In those circumstances,’ she explains, ‘each spouse accounts for their share of the capital gain in their individual tax calculation, and the primary residence exclusion is effectively applied proportionately to their respective shares of the gain.’

Practical considerations for homeowners
Although the higher threshold provides welcome relief, homeowners should still approach property sales with careful tax planning. For Haji-Pavlou, this requires keeping detailed records of property expenditure. ‘Maintaining proper documentation is critical,’ she says.

‘The original purchase price, transfer duty, legal fees, and qualifying improvements all increase the base cost of the property and reduce the capital gain.’

Crucially, only one property may qualify as a primary residence at any given time, and non-residents do not qualify for the exemption.

Additionally, properties held through companies or ordinary trusts do not generally benefit from the exclusion.

For property owners who partially rent out their premises, additional considerations apply. ‘If part of the property has been rented out or used for business purposes, the capital gain may need to be apportioned,’ the STBB Sandton Director notes. ‘Only the portion relating to domestic use may qualify for the primary residence exclusion.’

From an estate perspective, ‘a taxpayer is entitled to an increased annual capital gains exclusion of R440 000, which applies to all capital gains realised in that final year of assessment, not only gains arising from residential property,’ Haji-Pavlou usefully remarks.

Why professional advice is critical
While the primary residence exclusion may appear straightforward, capital gains tax calculations can be complex in practice.

‘Apportionment, valuation dates, improvements, and mixed use can all materially affect the final tax outcome,’ says Haji-Pavlou.

In addition, SARS may scrutinise frequent property disposals to determine whether a taxpayer is effectively trading in property, in which case profits may be taxed as ordinary income rather than capital gains.

‘For these reasons,’ the Johannesburg-based attorney notes, ‘homeowners should consider obtaining professional tax or legal advice before selling residential property, particularly where substantial gains are involved.’ While the tax relief is notable, ‘proper planning and accurate record-keeping remain essential to ensure the benefit is fully realised.’

For expert legal guidance in all real estate matters, contact our expansive team of property law attorneys today.