21 February 2018 - Estate Duty rate increases from 20% to 25% on dutiable amount of estates of more than R30 million.
Some key terms before we begin…
When a person (taxpayer) dies, that person is called a ‘deceased person’ and all his or her assets on date of death will be placed in an estate. This estate is called an estate of a deceased person (commonly known as a ‘deceased estate’).?? Assets in a deceased estate can amongst other things include immovable property (eg: house), movable property (eg: car, furniture, etc), cash in the bank, etc.? The person who administers a deceased estate is called an ‘Executor’. Once the Executor has finalised all the administration in the deceased estate, the remaining assets (after paying all the debts) will be distributed to the beneficiaries.
A beneficiary can consist of either heirs and/or legatees.? A legatee is a person who receives a specific asset from the deceased estate.? An heir is a person who receives the balance of the estate (that is, after all disposals to a legatee?are finalised).
How to register a Deceased Estate?
Do I need to pay tax on assets or money I inherited?
No, an asset inherited is a ‘capital receipt’ and is therefore not included in the taxpayer’s gross income.? Therefore, in South Africa, there is no tax payable by a person who receives an inheritance. Capital Gains Tax (CGT)
is also not payable by the recipient of an inheritance. CGT
,?if applicable, is usually payable by the estate.
Are donations or gifts different from an inheritance?
Yes, for tax purposes, donations and gifts are treated differently to inheritances. For resident individuals, donations are subject to Donations Tax
of 20% on the first R30 million of donations made during a tax year and then at the rate of 25% on donations exceeding R30 million, with an annual exemption of up to R100,000 of the value of all donations made during the tax year. For example, if a once-off donation of R80,000 is made by an individual, no tax is payable, but if a donation of R140,000 is made, then Donations Tax of R8,000 is payable (20%? of the amount exceeding R100,000, which is R40,000). For companies or trusts, the exemption for casual gifts is up to R10,000 per tax year.
Where the donor donates property to a donee, and the donor fails to pay the Donations Tax
, the donee and donor will be jointly and severally liable for the tax.? There are certain donations that are exempt, for example: donations between spouses and donations made to certain public benefit organisations. Read more on Donations tax
How does Estate Duty work in relation to an inheritance?
Estate duty is a form of tax that is levied on the deceased estate.? The purpose of estate duty is to tax the transfer of wealth (assets) from the deceased estate to the beneficiaries. The determination of estate duty can be summarised as follows –
|All Property of the deceased person at date of death?
|Property deemed to be property of the deceased estate at date of death?
|?Gross value of the deceased estate
|?? Less: allowable deductions
|?Net value of the deceased estate
|? Less abatement amount
||?(3 500 000)|
|?Estate duty calculated on?the dutiable amount
|?? Less: applicable tax rebates
|?? Less: amount of estate duty to be recovered from beneficiaries (if applicable)
|?Estate duty payable by the? deceased estate
The rate of estate duty is 20% on the first R30 million of the dutiable amount and 25% on any excess.
All income received or accrued before the deceased’s death is taxable in the hands of the deceased person up until date of death, and will be administered by the executor or administrator acting as the deceased’s representative taxpayer. After the date of death, the deceased estate comes into existence. The assets of the deceased person? will be held by the deceased estate until the liquidation and distribution account has lain for inspection and become final under section 35(12) of the Administration of Estates Act, after which the assets will be either handed over to the heirs or delivered to the trustee of a trust estate.
Income, which accrues to the estate after the death of the deceased but before the distribution of the assets to the beneficiaries, is dealt with under section 25 of the Income Tax Act.
The estate of a deceased person is subject to 20% Estate Duty
?on the first R30 million of the dutiable amount of an estate and 25% on the amount exceeding that figure , after taking into account a deduction of R3.5 million against the net value of the estate. So, if the total net value of the estate is R4 million, Estate Duty
will be dutiable on 20% of the amount exceeding R3.5 million which amounts to R100,000 (20% of R500,000).? It is normally the responsibility of the Executor to pay the duty as levied on the property of the deceased. However, there are instances in which the estate duty is payable directly by the person who is receiving the property.? For example, where a policy is payable directly to a beneficiary, the Executor must recover the estate duty attributable to such policy directly from the beneficiary (in other words, this portion of the estate duty will not be paid by the deceased estate).
What legislation affects inheritances?
South Africa’s inheritance laws apply to every person who owns property in South Africa.
The three main statutes governing inheritances in South Africa are:
- The Administration of Estates Act, which regulates the disposal of the deceased’s estate in?South Africa;
- The Wills Act, which affects all testators with property in South Africa;
- The Intestate Succession Act, which governs the devolution of estates for all deceased persons who have property in the Republic and who die without a will.?
The South African government has agreements with some countries to avoid double taxation in relation to estate duty. For more information, click here