There are many details that need attention when it comes to deceased estate taxation laws in South Africa.
By seeking assistance from a legal professional, you will ensure that you plan your will and set up your estate in such a way that, in the event of death, your estate will be dealt with as you choose.
A taxpaying person who passes away is known as a deceased person and all his/her assets or belongings that are left behind are known as his/her estate. The estate mostly includes immoveable property such as houses or apartments, moveable property such as cars and furniture as well as money in the form of investments or liquid cash.
During your life you will nominate an executor who will administer your estate post-death. The executor will be responsible for setting up your estate, finalising the payment of estate duties and taxes. Furthermore, the executor will administer and disburse the inheritance to your elected beneficiaries as stipulated in your last will and testament.
All assets will remain in the estate until they can be distributed as well as legally and financially accounted for as per section 35 of the Administration of Estates Act. Any form of income which accumulates to the estate after death and before the distribution of assets to beneficiaries is administered according to section 25 of the Income Tax Act.
Once taxation and other administrative processes have been approved, the assets can then be handed over to the beneficiaries or to the trustees in the case of a trust estate. Beneficiaries of an estate comprise of heirs who receive the inheritance of the remaining value from the deceased person’s estate.
A legatee will receive a specific item from the deceased estate on the bequest of the deceased person. The beneficiaries will only receive the remainder of the estate once legatee’s have received their bequests.
Capital Gains Tax (CGT) is not charged against an asset or money inherited from a deceased person’s estate and is therefore not included in the inheritor’s annual taxable income. CGT is usually paid by the estate before the beneficiaries receive their inheritance.
Donations from deceased estates are treated differently to inheritances and bequests. For locally residing donees, a once off donations tax of 20% is applicable on the first R30 million of donations received during that tax year.
A further 25% tax rate applies to every rand received thereafter in the same tax year, with an exemption of the first R100,000 of the value of all donations received in that tax year.
For example, a once off donation of R 100,000 is made to a private donee in a specific tax year and no tax is payable. Another donation of R40,000 is made to the same donee by a different donor in the same tax year and therefore, donations tax amount of R8,000 is payable as the amount of R40,000 exceeds the R100,000 annual donations tax exemption limit.
Companies and trusts may only receive gifts or donations with tax exemption up to the value of R10,000 per annum.
If the donor donates property to a donee and the donee is unable to pay the donations tax, both the donor and donee become jointly liable for the payment of the donations taxes.
This could have serious financial implications on the deceased estate, if not properly planned for during estate planning.
It’s important to note that certain donations are tax exempt. These include donations to public benefit organisations including the red cross, children’s homes, churches as well as donations between spouses.
The tax which is levied on deceased estate is known as estate duty and this tax is levied on the transfer of assets from deceased estate to the rightful beneficiaries.
All moveable and immoveable assets, including liquid capital left behind at the time of death are calculated before adding any asset which is the property of the deceased is added.
Then, the total market value is calculated at the time of death which gives the gross value of the deceased estate.
Allowable deductions which include the costs for the executor and bill payments to settle outstanding accounts post-death are deducted to arrive at a nett value for the deceased estate.
Estate Duty allows for an abatement of R3,5 million to be deducted from the nett value of the deceased estate, before arriving at the 20% of calculated duty on the remaining value of the estate as Estate Duties Tax.
For estates above R30 million, an estate duty of 25% is payable. If there is a negative value, tax rebates are applicable and can be applied for to SARS.
Donations, VAT and Capital Gains tax need to be deducted from the beneficiaries, donees and legatee’s before arriving at a final estate duty which will be paid by the deceased estate as Estate Duty.
In the instance where a policy is payable directly to a beneficiary, the executor will have to recover the estate duty applicable to the receipt of this benefit directly from the beneficiary.
The deceased estate will not be liable to pay the estate duty upon the pay out of this insurance policy to the beneficiary.
Legislation and taxation laws apply to every estate and person owning or receiving property in South Africa.
There are three main legislative statutes governing deceased estates, donations and inheritances in this country:
The Administration of Estates Act regulates the disbursement of the deceased persons estate in South Africa.
The Wills Act affects all testators or persons with property in South Africa.
The Intestate Succession Act administers the estates of persons who die with property in South Africa, but have not made provision for a will.
To avoid double taxation and estate duties in multiple countries on the deceased estates of persons who may have international investments or beneficiaries overseas, the South African government has reached agreements with some countries.
As part of our comprehensive legal services, we offer assistance with drafting last wills and testaments as well as estate planning and administration.
For more information about deceased estate taxation, including inheritance tax in South Africa, please feel free to contact our attorneys.
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