What are the considerations when buying your child their first car? 

When buying your child their first car there are a number of decisions that you will need to consider before buying the car. These decisions are impacted by: 

  • the price of the car,
  • the make and model of the car,
  • the safety of the car,
  • the affordability of the car,
  • and many more 

But there is one factor most parents might now be aware of. This one factor is mostly affected by the price of the car and who’s the name the car is in or who owns it more specifically (the child or parent). 

This factor is the donations tax 

Donations tax is an amount that the donee must pay to SARS when donating a large sum of money or gift. The donations tax will be levied when the gift/donation is equal to or more than R100K in an annual tax cycle (provided you haven’t made any other donations. If you as a parent buy a car that is valued at more than R100k, you may be liable to pay a 20% donation tax for the value over R100k. Because you are giving your child a vehicle as a gift it is considered to be a “donation”.  If you and your spouse can each donate R100k per annum, making the total sum R200k to your child.

The young teenagers/adults of today need to realise that there are many costs involved when buying a car. Especially if your parents are buying the car for you. 

A parent that is buying a car for a child might have to pay a 20% donation tax for every Rand over R100K. If you buy a BMW M3 Sport at a cost of R450K for example, you might pay a very hefty donation tax on that vehicle. R350k x 20% = R70k to SARS.

Who should own the car then?

A parent could potentially own the car and allow the child to “use it”. But, whether the car is in your name or not, is the car theirs in reality. I would imagine that the substance of the transaction may take precedence over its form. This means it may still be tax implications no matter whose name it’s in. There also may be tax relief for the maintenance of a child in which case you may be able to allow your child to use a car as it could be in the maintenance of them. So, always check with your tax advisor.

5 potential cars to buy your child

Ultimately, there are no bad cars but are highly dependent on affordability. If it’s a second-hand car then care needs to be taken by looking into the history of the car and the reputation of the dealership you may be buying from.

Here are 5 potential first cars that are affordable for your pocket with the average price point:

  1. Toyota Agya – R186 700 
  2. Kia Picanto – R193 999
  3. Hyundai Atos – R183 500 
  4. Renault Clio – R309 900
  5. Volkswagen Polo Vivo – R232 500

There are many other factors to consider when buying a car for your child, watch this space as I address these. 

*Note – this post does not serve as tax or financial advice. Please check with a professional or tax advisor before acting on anything from this post.