Estate Duty and Donations Tax increase

Estate Duty is a tax which is payable by every person who dies and who was ordinarily resident* in South Africa at the date of death or who was not ordinarily resident but owned assets in South Africa at date of death.

Estate Duty and Donations Tax increase

Where a person was ordinarily resident in South Africa, his worldwide assets will form part of his estate subject to any double tax agreement which South Africa may have with the country where the asset is situated.

Where the asset is situated in South Africa, the asset will generally attract estate duty irrespective of where the owner was resident at death.

Estate duty is charged at 20% on the value of a person’s nett estate exceeding R3.5million. The nett estate consists of all property (eg. assets such as immovable property, vehicles, investments etc.) and deemed property (eg. policies upon the life of the person with certain exceptions) of the deceased after deduction of liabilities, bequests to public benefit organisations and bequests to a spouse.

Estate duty has been levied at the rate of 20% but from 1 March 2018 there will be an increase in the rate payable in respect of dutiable estates above R30 million.

The estate duty rates from 1 March 2018 are as follows:

Taxable EstateRate of Estate Duty
R0  – R30 000 00020% of each R1
R30 000 001 and aboveR6 000 000 + 25% of nett estate above R30 000 000

 

Example:

A person with a nett estate of R50 000 000(after deduction of liabilities and bequests to a spouse):

  • Death before 1 March 2018
Nett EstateR50 000 000
Less exemptionR3 500 000
Dutiable estateR46 500 000
Estate duty @ 20%R9 300 000

 

  • Death after 1 March 2018
Nett EstateR50 000 000
Less exemptionR3 500 000
Dutiable EstateDutiable Estate
Estate duty R6 million + 25% of amount above R30 millionR10 125 000

 

To limit the donations made in an attempt to avoid paying the increased estate duty, donations tax has also been increased from 1 March 2018.

The first R30 000 000 donated in a tax year will be taxed at 20% and the amount above R30 000 000 will be taxed at 25%.

Every natural person is entitled to donate R100 000 annually and a donor other than a natural person is entitled to donate R10 000 annually without attracting donations tax.

The donations tax rates are as follows:

Taxable donationRate of donations tax
R0 – R30 000 00020%
R30 000 001 and aboveR6 000 000 + 25% of taxable amount above R30 000 000

 

Example:

A natural person donates R50 000 0000 in a tax year:

R50 000 000 – R100 000 annual donations tax exemption for a natural person =

R49 900 000 taxable donation

Before 1 March 2018:

R49 900 000 @ 20% donations taxR9 980 000

 

After 1 March 2018

R30 000 000 @ 20%R6 000 000
R19 900 000 @ 30%R5 970 000
Total donations taxR11 970 000

 

Conclusion: It is of extreme importance to have a proper estate planning report done by a professional competent person to ensure that you are aware of all the costs and tax implications which may arise upon your death.

*a person who considers South Africa as his/her home to which that person would return

Disclaimer

The material is not intended as and does not constitute financial or any other advice.  

The material does not take into account your personal financial circumstances. For this reason it is recommended that you speak to an accredited broker or financial adviser to consider all your options and draw up a plan to achieve your financial goals.

Karen van der Poll, CFP® LLB, Adv PG Dip in Fin. Plan,  Legal Advisor at Old Mutual Personal Financial Advice in the Western Cape.