Estate duty is charged on the dutiable value of the estate in terms of the Estate Duty Act. The general rule is that if the taxpayer is ordinarily resident in South Africa at the time of death, all of his/her assets (including deemed property), wherever they are situated, will be included in the gross value of his/her estate for the determination of duty payable thereon.
The current estate duty rate is 20% of the dutiable value of the estate. Foreigners/non-residents also pay estate duty on their South African property.
To minimise the effects of estate duty you need to understand the calculation thereof. The following provisions apply in determining your liability:
Property includes all property, or any right to property, including immovable or movable, corporeal or incorporeal – registered in the deceased’s name at the time of his/her death. It also includes certain types of annuities, and options to purchase land or shares, goodwill, and intellectual property.
A. Insurance policies
B. Benefits payable by pension and other funds by or as a result of the death of the deceased
Payments by such funds (pension, retirement annuity, provident funds) usually consist of two components – a lump sum payment on death and an annuity afterwards. The lump sum component used to be subject to estate duty. However as from 1 January 2009, no amount received from such a fund is included in the estate of the deceased for estate duty purposes.
C. Donations at date of death
Donations where the donee will not benefit until the death of the donor and where the donation only materialises if the donor dies, are not subject to donations tax. These have to be included as an asset in the deceased estate and are subject to estate duty.
D. Claims in terms of the Matrimonial Property Act (accrual claim)
An accrual claim that the estate of a deceased has against the surviving spouse is property deemed to be property in the deceased estate.
E. Property that the deceased was competent to dispose of immediately prior to his/her death (Section 3(3)(d) of the Estate Duty Act), like donating an asset to a trust, may be included as deemed property.
Some of the most important allowable deductions are:
1. The cost of funeral, tombstone and deathbed expenses.
2. Debts due at date of death to persons who have their ordinary residence in South Africa.
3. The extent to which these debts are to be settled from property included in the estate. This includes the deceased’s income tax liability (which includes capital gains tax) for the period up to the date of death.
4. Foreign assets and rights:
5. Debts and liabilities due to non-residents:
6. Bequests to certain public benefit organisations:
7. Property accruing to a surviving spouse [Section 4(q)]:
Portable R3.5 million deduction between spouses
The Act allows for the R3.5 million deduction from estate duty to roll over from the deceased to a surviving spouse so that the surviving spouse can use a R7 million deduction amount on his/her death. The portability of the deduction will only apply when the entire value of the estate of the first dying spouse is left to the surviving spouse.
Life assurance for estate duty
Estate duty will also normally be leviable on these assurance proceeds.
Source: Moore Stephens’ Estate Planning Guide.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice