Capital gains tax (CGT) refers to the amount of tax levied on the profit made from the sale of a property or investment.
Assets acquired by a person during his or her life are calculated at market value and disposed of at that value at the date of death.
The difference in value between the market value and the nett costs of the assets is regarded as capital gain (or loss) and must be reflected accordingly in the income tax return of the deceased person.
Where assets are distributed to the rightful heirs of the estate, the market value of such assets will be the base cost as found in the hands of the heirs.
Therefore, assets transferred to the heirs will not be deemed as a CGT liability until the heir disposes of the assets. Only on disposal of assets by the heirs, will CGT be applicable to the deceased estate.
First, the proceeds of the deceased persons wealth and assets are calculated according to market value at the time of death.
Then, the base cost of the estate is subtracted. The profit or loss at which the assets were disposed of will give the final tax rate which will either be payable or remunerated, depending if there was a gain or loss in capital.
The deceased persons assets are transferred directly to the deceased estate at the cost equal to current market value. This amount is referred to as the base cost of the estate.
When an executor disposes of assets directly to the rightful heirs, there will be no capital gain from this disposal and therefore CGT will not apply.
It should therefore be understood that CGT does not fall away should the assets be transferred to the heirs but is placed on hold until the heir disposes of his or her portion of the inheritance.
To find out more about capital gains tax in South Africa and how it’s calculated, please feel free to contact our attorneys in Johannesburg and Cape Town today.
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