THE NEED TO KNOW - DEATH AND TAXES IN SOUTH AFRICA

Please be advised that it is imperative that you must make use of a specialist in estate planning not just every attorney, these are also extracts from businesstech, SARS and my own expertise. Do take note that this is a very complex topic and that this article can by no means be used as the Alfa & Omega.

In South Africa, like in most countries, death and taxes go together in the form of inheritance taxes. These are taxes that the deceased estate must pay, in addition to the personal tax of the deceased person for their final tax year.

The personal tax is levied on the income the deceased person received before their death, during the tax year, whereas the inheritance taxes are levied on what they leave behind in their Will.

Here are a few very basic things to consider regarding the two inheritance taxes we face: estate duty and capital gains tax.

Taxes that apply when someone passes on?

There are two separate taxes levied on a deceased estate:

·        Estate Duty

Transfer of Wealth (assets) from the deceased’s estate to the beneficiaries.

Estate Duty is a tax paid on the ‘dutiable estate’ of a deceased individual. It is charged at a rate of 20% on the first R30 million of the dutiable estate, and 25% on anything above R30 million.

The dutiable estate comprises all the deceased individual’s property (assets and liabilities), after the allowable deductions have been made.

Estate duty is levied on the assets of deceased individuals who resided in South Africa at the time of their death (irrespective of their citizenship), and on the South African assets of deceased individuals who lived abroad.

Foreign property is considered in the calculation of the dutiable estate of an individual who resided in South Africa at the time of their death.

Fortunately, there are some allowable deductions which influence Estate Duty calculations include debts, funeral and death-bed expenses, administration costs, property transferred to a surviving spouse.

When the deceased has a surviving spouse, there is an exclusion of all assets bequeathed to the surviving spouse in that there would be no duty applicable to assets awarded to the surviving spouse. There is also a portable spousal abatement that applies on the death of the last dying in which case the estate duty rebate.

If the surviving spouse is the sole beneficiary, it is advisable that she/he do not make use of the first R3.5 million of the value of an estate which is not subject to Estate Duty. This allowance may then be added to the allowance granted to the surviving spouse of a deceased person which amounts to a total of R7 million which is not subject to Estate Duty, upon the death of the second spouse.

Deductions are also allowed for liabilities, assets that are inherited by the surviving spouse bequests and made to qualifying public benefit organizations.

There are many other exclusions that could potentially apply, and it is important that all of these are taken into consideration during the estate planning process (which will differ from the one to the next). Calculating Estate Duty correctly is a complex process with many factors having an influence on the calculation (with many of them not discussed in this article) and it is important that all of these are looked at very carefully by the Testator and his or her advisor prior to the drafting of their Will.

·        Capital Gains Tax (CGT) (The relevant legislation is contained in the Eighth Schedule to the Income Tax Act 58 of 1962.) is levied on any capital gain (profit) on the sale or transfer of an asset (which a deceased individual is considered to have done upon their death).

All South African residents (living or deceased) must pay CGT when disposing of an asset. Non-residents are subject to CGT on capital gains arising from the disposal of immovable property or an interest in immovable property in South Africa.

CGT is not a separate tax but forms part of Income Tax. The inclusion rate for CGT is 40% for individuals and deceased estates, the effective CGT rate for natural persons and special trusts is from 0% to 18%, depending on the marginal rate of normal tax applicable to the person. For purposes of the Eighth Schedule the disposal of an asset by a deceased estate or insolvent estate of a natural person is treated in the same manner as if the asset had been disposed of by that person

Some capital gains or capital losses (or a portion of the gains or losses) are disregarded for CGT purposes, for example, the following:

The first R2 million of the capital gain or capital loss on the disposal of a primary residence by a natural person or special trust.

A capital gain on disposal of the primary residence of a natural person or a special trust if the proceeds from the disposal do not exceed R2 million.

A capital gain or capital loss on disposal of a personal use asset by a natural person or special trust. Examples are motor vehicles, including a motor vehicle for which a travel allowance was received, caravans, furniture and jewellery.

Fortunately, there are some exclusions which apply to CGT. Any/all assets that go to the surviving spouse are exempt from CGT.

Furthermore, an exclusion of R300,000 is also applicable for the year in which the individual passed away.

Other basic exclusions include:

-         The first R2 million profit on the disposal of a primary residence (such as your house).

-         Most personal use assets (such as vehicles).

-         Retirement benefits and payments from original long-term insurance policies.

-         A small business exclusion of R1.8 million, when a small business with a market value not exceeding R10 million is disposed of (subject to certain qualifying criteria).

Other Taxes:

Lastly, any Testator also needs to be aware that there are numerous other taxes that could also potentially affect a deceased estate, such as VAT (Value Added Tax), Donations Tax and the tax surrounding the Section 7C loans by an individual to a Trust. All of these could potentially have great effect on a deceased estate one day and should already be considered during the estate planning stage.

This article is compiled by Francois Meyer with +36years a financial advisor at OPES TRUST.

You are welcome to share the content with family, colleagues and friends but only to be used for reference purposes. It does not constitute financial advice.

For more detailed discussions or a a comprehensive financial needs assessment I can be contacted at

Francois Meyer

Financial Advisor

OPES TRUST

"We endeavour to always do better than our best."