Estate Duty Considerations and Implications at Death

Feel free to reach out to PSG Wealth Manager Craig Sterling directly.

What is Estate Duty?

Estate Duty is a tax that is levied on the estate of someone who has passed away. It is levied on all individuals who are resident in South Africa at the time of death. It is also levied on non-residents who have assets in South Africa – but non-residents who originate from countries which have double estate duty agreements may have a reduced liability.

Estate Duty comprises of all Property of the deceased and all Deemed Property of the deceased.

How much Estate Duty is payable?

Persons deceased:

• Prior to 1 October 2001: 25%
• On or after 1 October 2001: 20%
• On or after 1 March 2018: 20% - 1st R30 mil
  25% - above R30 mil

What are the current deductions?

Any person deceased on or after 1 March 2007 receives a R3.5 mil Estate Duty abatement. Any bequest to a surviving spouse or PBO is deducted from Estate Duty, and as from 1 January 2010, the unutilised portion of the abatement of the first dying spouse may be carried forward to the estate of the surviving spouse.

Will I pay Estate Duty on my Retirement Money?

Assuming:

• Your beneficiaries do take a lumpsum and there is no deduction in terms of para 5 of the second schedule in respect of disallowed contributions, or
• There are no disallowed contributions

No Estate Duty is payable on Retirement Annuities, Pension and Provident Funds, Preservation Funds and Living Annuities.

As can be seen, contributing up to 27.5% of your taxable income, up to R350,000, to a Retirement Fund can have significant Estate Duty benefits.

One should not forget that the underlying investments in a Retirement Fund grow tax free and is only subject to income tax at retirement when an income is needed.

Living Annuities should always have nominated beneficiaries to avoid retirement money being paid into a deceased estate.

Investments into compulsory retirement products are not subject to executor fees and for the majority of clients, it limits the amount of Estate Duty payable.

Can I reduce my Estate by making Donations to my children?

An individual can make a R100 000 donation per annum
to any person or entity and pay no donations tax. Any amount above R100 000 will be taxed at 20% on the first R30 mil donated and thereafter 25%. Donations after 1 March 2018 count towards the R30 mil threshold. It is no coincidence that Estate Duty and Donations Tax are linked to one another.

Investing into a Local or Offshore Sinking Fund

We have seen the popularity of Sinking Funds increase over the past few years. A Sinking Fund has similar attributes to an Endowment Fund, but one key differentiating factor is that there is no life assured linked to the policy.

An investor has the option to nominate beneficiaries (including local and offshore trusts), thereby limiting executor fees and future Estate Duty if the monies remain within trust structures. Furthermore, there is a CGT roll-over on transfer to the beneficiary.

Section 4(q) Deduction to a Surviving Spouse

Section 4(q) allows for the deduction of the value of the property (or deemed property) in the estate of the deceased if it accrues to the surviving spouse (subject to limitations). If you are married in community of property, the deduction can only be claimed on the deceased half share of the
joint estate.

The strategy you follow will depend on your individual needs and goals as well as your personal circumstances. We look forward to reviewing your estate plan with you to ensure that it not only meets your needs but that it is as tax efficient as possible.

* Reference: South African Finaincial Planning Handbook 2022; Botha, Geach, Goodall, du Preez, Rabenowitz, Rossini.