VAT and residential rent: why landlords cannot claim
Why South African residential rent carries no VAT, why a landlord of homes cannot claim VAT on its costs, and how mixed portfolios and Category E fit in.
By Achekam · · 5 min read · For Running a business businesses in South Africa
A family company owns a block of twelve flats. Every year it replaces geysers, repaints stairwells, pays a plumber and a managing agent, and every one of those bills carries VAT. The directors look at the VAT they have paid and ask the obvious question: surely the company can claim that back?
It cannot, and the reason is not a technicality. Residential rent sits outside the VAT system in a way that works against the landlord as well as for the tenant. This article explains why letting homes is treated differently, what that means for registration and input tax, how a portfolio that mixes flats with shops or offices is affected, and how to record rent and expenses so your books reflect it.
Letting a dwelling is an exempt supply
SARS's VAT 404 guide for vendors says no VAT is levied on the letting of a dwelling under a lease agreement. It adds that this also applies to employee housing supplied by an employer, but not to commercial accommodation such as guesthouses and holiday lets.
SARS's VAT 409 guide for fixed property and construction names the category: the letting of a dwelling is an exempt supply.
Exempt is not the same as zero-rated. A zero-rated supply is taxable at 0%, and the supplier can still claim the VAT on its costs. An exempt supply is outside VAT altogether, and that has consequences for the costs, as the next section shows.
The guides quoted are VAT 404 issue 15, up to date as at 17 December 2024, and VAT 409 issue 7, up to date as at 5 October 2023. Guesthouses and other short stays are a different case, covered in VAT on guesthouses, B&Bs and holiday lets.
No registration, and no input tax
Because residential letting is exempt, the VAT 409 guide says a person making only exempt supplies cannot register for VAT, and cannot deduct input tax on expenses of the exempt activity. The VAT 404 guide says the same in general terms: a person that makes only exempt supplies may not register, and a registered vendor may not deduct VAT on goods or services acquired to make exempt supplies or for private use.
So for the family company with twelve flats and nothing else, the VAT on the geysers, the paint and the plumber is simply part of the cost of the building. There is no VAT number to claim it under, and no exempt-only landlord can obtain one.
That changes how a residential landlord should look at costs. Every quote is, in effect, a VAT-inclusive cost to the business, and should be compared that way.
SARS's VAT 409 guide for fixed property and construction explains how VAT applies to property transactions, including letting, and how to tell when VAT or transfer duty applies.
Mixed portfolios: shops below, flats above
Many property owners do not have a pure residential portfolio. A building with shops on the ground floor and flats above, or a company that owns an office park and a few townhouses, makes both kinds of supply.
The flats are still exempt. Letting the shops or offices is not the letting of a dwelling, so the exemption above does not cover it. If the business is registered for VAT because of its commercial letting, the VAT 404 rule still applies: it may not deduct VAT on goods or services acquired for the exempt part of the business.
In practice, costs fall into three groups:
| Cost | Example | Input tax |
|---|---|---|
| Only for the commercial units | Shopfitting for a tenant | Claimable by a registered vendor, with a valid tax invoice |
| Only for the flats | Replacing a flat's geyser | Not claimable |
| Shared by both | Roof repairs, the managing agent for the whole building | Needs to be split |
How a shared cost should be split is a question for your accountant, who can apply SARS's rules to your building. What matters for the books is that the split is decided, documented and applied consistently. Other costs where input tax is restricted whatever the business does, such as entertainment and passenger cars, are covered in VAT you cannot claim: cars, entertainment, club fees.
Category E for property-letting companies
If a property company or trust is registered, the next question is how often it files. SARS's tax period rules say Category E, with twelve-monthly returns, applies to a company or trust whose activities are letting fixed property, renting movable goods, or administering or managing companies that are connected persons to it. SARS's page on tax periods was last updated on 31 January 2025, so confirm your category with SARS.
For a registered company whose business is letting a mixed portfolio, that may mean one VAT return a year rather than several. It does not remove the need to keep the residential and commercial sides apart in the books every month.
Recording rent and expenses in Achekam
Achekam's VAT settings are simple, and that has to be understood when recording residential rent.
On the sales side, a South African business sets each invoice line's VAT to 15% or 0%, and the invoice screen does not tell zero-rated and exempt apart. Residential rent goes on at 0%, but the screen will not show that it is exempt rather than zero-rated. Keep your own note, or a separate revenue line, so that the exempt rent can be identified when the VAT return is prepared.
On the purchases side, a South African business's supplier bills take 15% or 0% VAT per line, and bills post input VAT to the ledger. Achekam records supplier bills line by line with VAT; a bill without a purchase order waits for approval before it posts. For a cost that serves only the flats, the VAT is not claimable, so record the full VAT-inclusive amount as the cost, with no input VAT posted. For a shared cost, record it according to the split your accountant has agreed.
Before the next maintenance season
List your properties and mark each unit as residential or commercial. Agree with your accountant how shared costs are split, and set up your bills and revenue lines so the split is visible every month. Then budget for residential repairs at their VAT-inclusive cost, because that is what they cost the business.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
