In Zimbabwe, one of the most crucial factors to take into account when selling immovable property is whether Capital Gains Tax (CGT) will be payable. CGT is levied on the profit arising from the sale of a “specified asset”, including real estate, as provided in the Capital Gains Tax Act [Chapter 23:01]. The law does acknowledge, nonetheless, that there are situations in which taxing the seller would be unfair or impracticable. Consequently, the Act offers a number of statutory exemptions and reliefs that may be applicable.
With particular reference to the Act’s provisions, this article lists the primary exemptions that apply to sellers of real estate.
- Compensation for Expropriation – Section 8(2) (c)
The compensation is considered a capital receipt if the State compulsorily acquires your property. However, CGT is not applied to certain listed persons, such as those covered by the Global Compensation Deed.
- Executor’s Property Disposal – Section 10(b)
When the executor of a deceased estate sells immovable property, section 10(b) exempts the transaction from CGT. Regardless of whether the asset is sold to pay off estate debts or given to heirs, this exemption is applicable.
- Exemption for Principal Private Residences – Section 10(l)
The capital gain is tax-exempt under section 10(l) if you are 59 years of age or older at the time of the sale and the property is your primary private dwelling.
In order to be eligible, the property needs to fit the definition given in section 21(1): It must be your primary or only home;you must have resided in it for at least four years (or a shorter period deemed reasonable by the Commissioner) and it includes up to 2 hectares of land and any domestic outbuildings used in conjunction with the home.
- Donation of Housing Units to Public Entities: Section 10(p)
Donations of immovable property (such as housing units) to a community share ownership trust or scheme, an authorized employee share ownership trust, or a municipal government are exempt from capital gains tax. This relief promotes donations for socially useful causes.
- Property Inherited or Pre-1981 – Section 11(2) (a)
Special valuation standards apply in the following situations, however they are not precisely an exemption; the value of the deceased’s estate serves as the basic cost when it is inherited; if the item was purchased before to August 1, 1981, the seller is permitted to use the fair market value at that time.
For properties kept for decades, this clause frequently lowers or eliminates the taxable gain.
- Reinvestment in a New Home-Section 21(2)
You may be eligible for roll-over relief under section 21(2) if you are selling your present residence to upgrade or move, and you use the profits to purchase or construct a new residence within the following assessment year.
CGT is only due on the fraction that is not reinvested, as determined by a specified formula; if the entire sale profits are reinvested, no CGT is due.
- Transfers Between Spouses or Following Divorce – Section 16(2)
When property is transferred between spouses or to a former spouse as a result of a divorce, there is no CGT due. By setting the selling price at the historical cost, the parties can choose to postpone any gain and avoid an immediate tax obligation.
4. Transfer of Business Property to a Company You Control – Section 17
Where property used in your personal business is transferred to a company you control, you can elect to defer CGT by treating the transaction at cost basis under section 17. The relief applies where; the property was used in trade; the company will continue to use it in trade; and you control the company (e.g., majority shareholding). This provision supports business formalisation and restructuring without tax penalties.
In Conclusion
A property sale’s net proceeds may be greatly impacted by capital gains tax. Fortunately, Zimbabwean law offers a number of thoughtful exemptions that uphold equity and advance public policy. Effective tax preparation can assist you in legally reducing or eliminating your CGT burden, regardless of whether you are restructuring your firm, transferring to a spouse, or downsizing in retirement. Although the sale of real estate may result in CGT, there are a number of exemptions and rollover relief options available under the Capital Gains Tax Act that can drastically lower or even completely remove tax obligations. To take advantage of these reliefs, sellers must carefully consider their eligibility, make timely elections, and keep accurate records.