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:

1. The Administration of Estates Act (Regulates the disposal of the deceased’s estate in South Africa
2. The Wills Act (Affects all persons with a will for their property in South Africa
3. The Intestate Succession Act (Governs the distribution of estates of all deceased persons who have property and who die without a will.

Inheritance tax is made up of the following taxes

1. Income Tax for the deceased individual (Personal Taxes)
2. Capital Gains Tax;
3. Estate Duty Tax, and
4. Donations Tax (if applicable to the specific Estate)

Who is obliged to pay inheritance tax in South Africa?

Beneficiaries

In South Africa, there is no tax payable by a beneficiary on assets received from an inheritance. SARS explains the situation as follows: ‘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.’

Deceased estate

Although a beneficiary does not have to pay inheritance tax on what he or she inherits, inheritance tax applies to the estate of a deceased person, commonly known as a ‘deceased estate,’ in the form of ESTATE DUTY.

SARS describes the purpose of estate duty as, ‘… to tax the transfer of wealth (assets) from the deceased estate to the beneficiaries.’

Essentially, estate duty, previously known as succession duty, is a form of capital transfer tax.

What is Estate Duty?

Estate duty – Tax rate

Estate duty is a tax payable on the ‘dutiable estate’ (taxable amount) of a deceased estate and is charged at:

• a tax rate of 20% on the first R30 million and,
• at 25% on the amount above R30 million.

The dutiable estate comprises all the deceased individual’s property (assets and liabilities), after the allowable deductions have been made (more about that later).

Abatement

Currently, a primary abatement (exemption) of R3.5 million is allowed and any bequest made to a spouse is not subject to estate duty. When the surviving spouse dies, the non-utilized primary abatement is carried over, implying that an amount of R7 million of the deceased estate is then not taxable.

Property (assets and liabilities)

Estate duty is levied on the assets of deceased individuals who resided in South Africa at the time of their death (even if they were not South African citizens), and on the South African assets of a deceased person who lived in a foreign country. Estate duty also applies to foreign property owned by a deceased if he or she was a resident of South Africa at the time of death.

Assets in an estate can include, inter alia, a house, vehicles, furniture, cash, and shares in companies. Examples of liabilities are mortgage bonds, loans, and tax payable to SARS.

Allowable deductions

Allowable deductions which influence Estate Duty calculations include debts, funeral and death-bed expenses, administration costs, property transferred to a surviving spouse, and the first R3.5 million of the value of the estate.

The first R3.5 million of the value of an estate is not subject to Estate Duty. This allowance may be added to the allowance granted to the surviving spouse of a deceased person which amounts to a total of R7 million which is not subject to Estate Duty, upon the death of the second spouse.

Deductions are also allowed for liabilities, bequests made to qualifying public benefit organisations, and assets that are inherited by the surviving spouse.

Estate duty and retirement funds and life insurance policies

If an individual died on or after 1 January 2009, Funds held in any retirement fund, such as a retirement annuity, pension fund, provident fund, or living annuity are not considered ‘property’ by SARS and are therefore not subjected to estate duty.

When a life insurance policy is paid out, the value of the pay-out is included in the value of the deceased’s estate and it could therefore impact the amount on which the estate duty is levied.

There are certain exemptions, such as:

• When the policy falls outside of the estate in terms of an antenuptial contract.
• When the policy had been implemented and paid for by a business partner and the proceeds are then paid to the business partner on the death of the individual whose life had been insured.
• When the policy was not taken out by the deceased individual and will not be used to benefit a family member or business associate of the deceased.

The life insurance policies referred to above include policies where a spouse or child is nominated as a beneficiary, buy-and-sell policies, and key-person policies that conform to the conditions as set out in the Act. It is important to note that endowment policies (local and offshore) that do not pay out on the death of a life assured, but that are owned or part-owned by a deceased policyholder, will be subject to estate duty.

The surrender value of the policy must be included as property in the deceased estate.

Estate duty payable to SARS

When the final figure of estate duty is determined, it is usually the responsibility of the executor of the deceased estate to pay the tax over to SARS before the remaining funds are paid to the beneficiaries.

The executor will calculate the Estate Duty payable when preparing the liquidation and distribution account. The executor must complete the Estate Duty Return (Rev267) and must submit the return, together with the liquidation and distribution account to the Master of the High Court as well as to SARS.

Double taxation may arise if the same assets of the deceased person are subject to Estate Duty in South Africa as well as the equivalent thereof in the foreign country. South Africa has entered into Estate Duty agreements, to avoid double taxation on Estate Duty, with the following countries: The United States of America, the United Kingdom, Zimbabwe and the BLS Countries (Botswana, Lesotho, Swaziland – now Eswatini).

Inheritance tax is payable within one year from the date of death, or 30 days from date of assessment if you complete the assessment within one year of the death date. If you don’t meet these deadlines, an interest rate of 6% on late payments may be charged.

What is Capital Gains Tax (CGT) and who has to pay it?

South African residents (living or deceased) have to pay CGT on the profit (capital gains) that is made when disposing of an asset. Non-residents are subject to CGT on capital gains arising from the disposal of immovable property or an interest in immovable property in South Africa.

The Income Tax Act declares that a deceased individual will be deemed to have disposed of their assets for an amount equal to the market value of the assets, on their date of death.

However, CGT is not a separate tax but forms part of Income Tax. The inclusion rate for CGT is 40% for individuals and deceased estates, and therefore the maximum effective rate of 18% would be levied.

Is any profit excluded from Capital Gains Tax?

There are some exclusions which apply to CGT. Any assets that go to the surviving spouse are exempt from CGT.

Other basic exclusions include: that go to the surviving spouse are exempt from CGT.

Other basic exclusions, Click on link below for latest information on Capital Gains Tax

If you are planning to pass your inheritances to your loved ones, it is important to ensure that your assets will be distributed according to your wishes. Make sure you write up a Will so that there is no confusion for your family.