Estate duty – a tax on your estate – is applied at the time of your death. It is calculated on the value of your “property” and “deemed property” after certain allowable deductions, as well as an abatement, are taken off the gross value of your estate.
The duty is levied at 20% of this net value, if your dutiable estate is below R30 million. Above this amount, the rate is 25%. However, there is an “abatement” of R3.5 million, so if the net value of your estate is less than or equal to this amount, the estate duty is nil.
The R3.5 million abatement is portable between spouses, so any unused abatement in the first-dying spouse’s estate can be used in the second-dying spouse’s estate. This may be the entire amount if the entire estate is left to the spouse (see below), resulting in a total abatement for the surviving spouse of R7 million.
Your “property” includes furniture, vehicles, investments, shares and crypto assets. Examples of “deemed property” include donated property that was exempt from donations tax and certain insurance policies that pay out on your death.
In life, and in death, SARS rewards you for contributing to your retirement funding. When you die, the lump sum and the annuities that are paid out from retirement funds – a retirement annuity, pension fund, provident fund or preservation fund – are not considered “property”.
Elmarie Neilson, a lawyer practising in Cape Town, explains the implication of this: “If you have a pension benefit or retirement annuity, these amounts do not flow through the estate. This brings down the value of the estate, which in turn brings down the estate duty and executor’s fees. Note that SARS does take its cut from the amount paid out on death from your retirement fund or living annuity (according to the retirement lump-sum tax table).”
Neilson notes that some people start donating money to family members or transferring assets into a trust while they are still alive – if they are certain that they have enough money to live off for the rest of their days. They enjoy seeing the effect of their donations, while also lowering the value of the estate. Of course, this can trigger donations tax, capital gains tax, and transfer duty on the transfer of a property, although transfer duty is payable by the person acquiring the property from the donor.
On donations, there’s an annual general exemption of up to R100 000. So if you donate a car valued at R120 000, and that is the only donation you make in the tax year, this is how the taxable donation is calculated:
• R120 000 less R100 000 general exemption = taxable donation of R20 000
• R20 000 x 20% = donations tax of R4 000
Another lever to engage in bringing down estate duty is to leave your assets to your spouse rather than your spouse and children, or to your children: Section 4q of the Estate Duty Act provides for a deduction in a deceased estate for any asset that accrues to a surviving spouse – by means of testamentary succession (via a will), intestate succession (where the deceased dies without a will) or even where the spouse is a nominated beneficiary on a life policy owned by the deceased. There are other ways of reducing the value of your estate for estate duty purposes – enlist the help of a financial planner or estate planner to achieve the best plan for your specific situation.
