Death and taxes – You can’t escape either

09 Oct 2023

Understanding estate tax in South Africa: A comprehensive guide and what to expect as a beneficiary

Estate Duty in South Africa plays a crucial role in the transfer of wealth and assets from one generation to another. Being named as a beneficiary in a will is a significant responsibility, and staying informed about the tax implications and legal processes involved is essential. Seek professional guidance and stay updated on tax laws to ensure a smooth transition of assets and to avoid any unexpected financial burdens.

Inheritance tax or Estate Duty in South Africa?

As a significant consideration for individuals and families across the country, let’s delve into the intricacies of inheritance in South Africa and provide insights into what beneficiaries should expect when named in a will.

First, let’s clear up some common confusion. We do not have “Inheritance tax” in South Africa. It exists in other countries, but not here. Here, we refer to an “Estate Duty”.

Inheritance tax is what an individual who benefits from an inheritance needs to pay and in South Africa this is nothing.

Estate duty is what the estate needs to pay before an inheritance can be paid out. Two different things. In South Africa the estate is taxed, not the individual beneficiary.

This is great news! In South Africa, there is no tax payable by a beneficiary on assets received from an inheritance. The South African Revenue Service (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.”

What is Estate Duty in South Africa?

Estate Duty is imposed on the estate of a deceased person before the assets are distributed to beneficiaries as outlined in the deceased’s will. SARS administers Estate Duty, guided by the Estate Duty Act of 1955.

Estate Duty rates and exemptions

Estate Duty in South Africa is calculated based on the net value of the estate (assets minus liabilities) and is subject to specific rates:

The first R3.5 million of the estate’s net value is exempt from Estate Duty. No tax is payable if the estate’s value falls below this threshold.

Estates with a net value exceeding R3.5 million are subject to a 20% tax rate on the portion exceeding the R3.5 million threshold.

So that means that above R3.5 million you pay 20% only on whatever is over and above the R3.5 million, not 20% on the total amount. This applies up to the first R30 million, at which point there will be further deduction thresholds!

Certain deductions and exemptions are available, such as those for surviving spouses, registered public benefit organisations, and bequests to children under 18 years old. It’s important to note that tax laws can change, so it’s advisable to consult with a tax professional or check SARS for the latest Estate Duty rates and exemptions.

What to expect as a beneficiary

Being named as a beneficiary in a will is a significant event with several important considerations:

Notification and documentation: The executor specified in the deceased’s will contacts beneficiaries to inform them of their status. Beneficiaries will receive documentation detailing their entitlement and the assets or bequests they will inherit.

Probate process: The executor initiates the probate process, which involves validating the will and the deceased’s estate. This process can take several months to complete, depending on the complexity of the estate.

Distribution of assets: After meeting all legal obligations, including the payment of Estate Duty, the executor distributes the assets to beneficiaries according to the terms of the will.

All these processes take time. Even with very simple estates, with no debt or investments, this process can take multiple months, or even years. If you are dependent on the estate to make provisions for the funeral or burial of your loved one, then rather consider a funeral plan. They can pay out within 24 hours of the receipt of the required documentation, and you will be able to say your final goodbyes in far more comfort, with financial peace of mind.

Most importantly, seek professional advice. It is highly advisable for beneficiaries to consult with qualified attorneys or financial advisors specialising in estate planning and taxation to fully understand their rights and obligations.

Article sourced from Legal&Tax.

See also:

• Deceased estate administration – A lengthy process
• Deceased estates and the law
• How to FICA a Deceased Estate
• Five things to consider when drafting a will in South Africa

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)