Introduction
Generally, the disposal of capital assets in Zimbabwe such as buildings, land and other immovable structures attracts Capital Gains Tax, commonly known by the acronym or referred to as CGT. In brief, CGT is a tax that is levied on gains realized from the disposal of assets technically referred to as ‘specified assets’ in terms of the CGT Act CAP 23:01. The definition of a ‘specified asset’, as provided by the said Act, is wide and embraces almost every immovable property including an individual’s private house. It is imperative to understand that this tax applies to assets owned by companies, individuals in trade or employed and even to the unemployed individuals who own the qualifying assets. However, the tax law also allows qualifying individuals to sell their homes or residential stands tax free.
Understanding the Exemption
As alluded to above, the disposal of a capital asset including a house, or a stand technically triggers a tax levied on the arising gains. However, the CGT Act provides tax relief and an exemption to individuals who meet the prescribed criteria. Simply put, the tax law allows qualifying individuals to dispose of their house or residential stand without paying a dime to the Zimbabwe Revenue Authority (ZIMRA). Primarily, for an individual to enjoy the relief or exemption the property should qualify as a principal private residence (PPR). Let us now clarify what exactly is a PPR.
Enter PPR
The term Principal Private Residence or PPR is a technical term that is defined by the above-mentioned Act. This therefore means that a house or a stand that does not fall within the ambit of the prescribed definition technically loses the relief or exemption. The Act states that a house is regarded as a PPR if:
- The individual owns it, for those with multiple houses there is a need to prove that the house was the main place of residence or
- The house should have been owned for at least 4years before the sale.
In instances where the individual was prevented from staying in the house due to employment, for example, those individuals who enjoy company housing benefits, the house simply needs to have been regarded by the impacted individual as his or her main place of residence. In the case of a residential stand, the same is regarded as a PPR if the individual can prove ownership of that land (with or without a title deed). Further, the Act states that a residential stand should not exceed 2 hectares for it to qualify as a PPR.
The relief
Having regard to the above, the said Act goes on to provide a relief from paying CGT to any individual who uses the proceeds from the disposal of a PPR to buy a new PPR. As an example, say Mr. Chimuti disposes of his only house in Kambuzuma for USD50,000 and buys another house in Greendale for USD50,000. In such an instance no CGT will apply as the proceeds were used to acquire another PPR. However, if Mr. Chimuti sells his house in Kambuzima for USD50,000 and buys a cottage in Domboshava for USD20,000 and uses the balance to start a business, he will be assessable for CGT on the USD30,000. It may also happen that a PPR may be disposed of, and the proceeds are used to buy a stand and the balance is used to construct another PPR. In such an instance, the individual is required to provide proof beyond reasonable doubt that the amount will be used to develop the stand before the end of the year following the disposal.
The exemption
On the other hand, an individual who is over 55years old is regarded as an elderly person for tax purposes. Accordingly, the act prescribes that such an individual is exempt from tax on any gains realized from the disposal of a PPR. Essentially, the person need not to buy another PPR in order to enjoy the exemption as applicable to anyone else. This technically, means that an individual who is over 55years can sell his or her PPR and use the proceeds on other endeavors without any tax consequences. However, it is key to note that to qualify for the exemption, the individual should have attained 55years of age or be over the said years, in the year of disposal
Conclusion
Essentially, gains realised from the disposal of an individual’s house are free from tax provided the house qualifies as a PPR and such proceeds are reinvested to acquire another PPR. However, individuals who are aged 55years and above are exempt from tax if they dispose of their PPR, regardless of the fact that the proceeds are reinvested in acquiring another house or not.
