Estate Duty and Inheritance Tax in South Africa: What Heirs Need to Know

By / September 22, 2025

Losing a loved one is hard enough without tax complexity. In South Africa there is no separate tax on what […]

Estate Duty and Inheritance Tax in South Africa What Heirs Need to Know

Losing a loved one is hard enough without tax complexity. In South Africa there is no separate tax on what heirs receive, commonly called “inheritance tax” in some countries. Instead, the tax that applies on death is estate duty, which is levied on the dutiable value of the deceased estate. In addition, certain capital gains tax (CGT) rules are triggered at death, and a handful of asset classes have their own special treatment. This guide explains the essentials in plain English so that families can plan, file, and inherit with fewer surprises.

Key takeaways

  • South Africa does not impose a standalone “inheritance tax” on what heirs receive. The principal tax on death is estate duty, which is levied on the estate itself.
  • Estate duty is charged at 20% up to a threshold and 25% above that threshold.
  • Every estate benefits from a basic abatement (commonly called the Section 4A deduction). Any unused portion of a predeceased spouse’s abatement can be ported to the survivor, potentially doubling the allowance in the second estate.
  • Amounts bequeathed to a surviving spouse are generally deductible for estate duty purposes (the Section 4(q) deduction), which often defers the tax until the second death.
  • CGT may arise at death under a “deemed disposal” rule, but several exclusions and rollovers (including a spouse rollover) may apply.
  • Retirement fund death benefits are typically dealt with under pension law rather than by the will, and they are generally excluded from the deceased estate for estate duty purposes.
  • Heirs ordinarily do not pay tax simply because they inherit. CGT arises only if and when they later dispose of inherited capital assets.
  • Timelines matter. Estate duty is payable within set statutory time frames, and late payment attracts interest at the prescribed rate.

Estate duty versus “inheritance tax”

In some jurisdictions heirs pay an “inheritance tax” on what they receive. South Africa does not operate that way. Here, the tax is levied on the estate, not on the heir. The executor is responsible for calculating estate duty, submitting the return, and paying the tax from estate funds before distributions are finalised. In specific instances, particularly where a life policy pays directly to a named beneficiary, the law can attribute a portion of the estate duty to that beneficiary, but the executor still co-ordinates the calculation and compliance.

What is included in the deceased estate?

Estate duty applies to property and to certain forms of deemed property as at the date of death.

Property (typical examples)

  • Immovable property such as a home, holiday house, or farmland
  • Bank accounts, money market holdings, unit trusts, and listed shares
  • Business interests, including private company shares and close corporation member’s interests
  • Loan accounts owed to the deceased (for example, loans to a family trust)
  • Personal effects and valuables (vehicles, jewellery, collections)

Deemed property (typical examples)

  • Proceeds of most South African life insurance policies on the deceased’s life, even if the proceeds are paid directly to a beneficiary rather than into the estate
  • Certain benefits arising from buy-and-sell or key-person policy arrangements, depending on ownership, premium payer, and drafting
  • Property disposed of within a specified period prior to death where the deceased retained certain rights of enjoyment or control

The “deemed property” concept is important. Families are often surprised to learn that a policy that pays out directly to a spouse or child may still be pulled into the estate duty calculation. The good news is that the spousal deduction and other reliefs can neutralise or reduce the duty in many of these scenarios if structured correctly.

Deductions before the basic abatement

The law permits several deductions to arrive at the net value of the estate before applying the basic abatement:

  • Spousal deduction (Section 4(q)): Property accruing to a surviving spouse is deductible. This is one of the most powerful provisions, as it can defer estate duty until the second death.
  • Debts and liabilities: Valid debts owed by the deceased and proven to the satisfaction of the authorities, including income tax up to date of death.
  • Funeral and administration expenses: Reasonable amounts, including executor’s remuneration, advertising, and valuation fees.
  • Public benefit bequests: Bequests to qualifying public benefit organisations may be deductible.
  • Other specific deductions: For example, certain overseas estate taxes may be creditable in limited circumstances, and specific policy arrangements may qualify for exclusions.

After deducting these items, the basic abatement is applied to determine the dutiable amount.

The basic abatement and spousal portability

Each estate enjoys a basic abatement (widely referred to by practitioners as the Section 4A deduction). If the first-dying spouse leaves everything to the survivor, almost none of that abatement is used at the first death because the spousal deduction already reduced the estate to nil for duty purposes. The unused portion can then be ported to the survivor. With proper documentation, the second estate can therefore enjoy a combined abatement equal to the survivor’s own abatement plus the unused amount carried over from the first spouse. In practice, that often doubles the allowance available in the second estate.

Administrative note: To claim portability, the executor of the second estate must provide documentary proof from the first estate (for example, the Liquidation and Distribution account and supporting schedules) to evidence the unused portion. Without those records, the authorities may decline the claim.

Current estate duty rates

Estate duty is charged at two progressive rates:

  • 20% on the dutiable amount up to the threshold; and
  • 25% on the excess above that threshold.

These rates have been stable for several years, but tax is inherently subject to change. Executors should verify the rates that apply at the date of death.

Capital gains tax at death

Estate duty is not the only tax rule triggered at death. For CGT purposes, the Income Tax Act treats the deceased as having disposed of most assets at market value immediately before death. This is the deemed disposal at death. Key points include:

  • Annual exclusion uplift: In the year of death, an individual’s annual CGT exclusion is increased relative to the standard exclusion for other years. This provides relief for ordinary taxpayers and is particularly helpful where only modest gains exist.
  • Spousal rollover: Assets that pass to a resident surviving spouse typically transfer at the deceased’s base cost rather than at market value, deferring CGT until the spouse later disposes of the asset or dies.
  • Primary residence relief: The standard primary residence exclusion for natural persons can apply to gains on a main home up to the legislated limit, even on the deemed disposal at death.
  • Retirement interests and certain insurance policies: Interests in approved retirement funds and certain categories of long-term insurance are specifically excluded from the deemed disposal at death.
  • Base cost for heirs: Heirs do not pay CGT merely by inheriting. When they later dispose of inherited assets, their base cost is generally the market value at date of death (or the deceased’s base cost where a spousal rollover applied).

In practice, the executor’s income tax practitioner, or the family accountant, will compute CGT alongside the estate duty calculation and disclose it in the deceased’s final tax return.

Special rules for common asset classes

1) Retirement funds (pension, provident, preservation, and retirement annuity)

Death benefits from approved retirement funds are governed by trustee discretion under pension law. They are usually not assets of the deceased estate for estate duty purposes and are distributed to dependants or nominees according to statutory criteria. The tax on such lump sums is determined by the retirement lump sum death benefit tables rather than by estate duty rules. Timing and documentation matter, and beneficiaries should liaise with the fund administrators early.

2) Living annuities

A living annuity is a contract between a life company and the annuitant. On death, the remaining capital is not part of the conventional estate but is paid to nominated beneficiaries or, failing that, to the estate. Treatment can differ from fund benefits, so executors should examine product terms, beneficiary nominations, and any disclosure from the insurer.

3) Life insurance

Proceeds of most domestic life policies on the deceased’s life are deemed property for estate duty. If the proceeds accrue to a surviving spouse, the spousal deduction may reduce the duty to nil on that policy. In business planning, correctly structured buy-and-sell or key-person policies may be excluded from the deceased estate if ownership, premium payment, and policy wording follow the statutory guidance. Because small drafting errors can undo the relief, professional advice is strongly recommended.

4) Family trusts

Assets that are already in a properly administered trust are generally not the deceased’s property and are therefore not part of the estate for estate duty. However, any loan account owing by the trust to the deceased is an asset of the estate. In addition, anti-avoidance rules may deem certain property or rights to be in the estate where the deceased retained rights of enjoyment or made certain dispositions within a defined look-back period.

5) Immovable property and transfer duty

If you inherit a house or other real property through a will or intestacy, transfer duty is typically not payable due to a statutory exemption for inheritances. However, conveyancing fees, rates clearances, transfer charges, and administration costs will still apply.

6) Business interests and private company shares

Business interests require valuation and, in many cases, shareholder or member resolutions to implement transfers. Buy-and-sell agreements funded by life policies are common. Where these are correctly structured, the policy proceeds can stay out of the dutiable estate and provide liquidity to purchase the shares from the estate, ensuring continuity in the business.

Cross-border and residency considerations

  • Who is taxed: If the deceased was ordinarily resident in South Africa, estate duty generally applies to worldwide assets. If the deceased was non-resident, estate duty usually applies only to South African-situated property.
  • Foreign death duties: Some countries levy their own estate or inheritance taxes on assets situated within their borders. Double-taxation relief may be available in limited cases, either via treaty or through unilateral credit mechanisms.
  • Practical steps: Executors should identify foreign assets early, obtain local valuations, and engage advisers in the relevant jurisdictions to prevent delays and protect against double taxation.

Who files and pays?

The executor is responsible for:

  1. Registering the estate with the Master of the High Court and obtaining Letters of Executorship.
  2. Compiling a full inventory of assets and liabilities and securing valuations.
  3. Preparing the Liquidation and Distribution (L&D) account and circulating it in accordance with the Master’s procedures.
  4. Filing the Estate Duty Return (commonly the REV267) and supporting schedules.
  5. Paying estate duty from estate funds within the statutory deadlines.
  6. Submitting the deceased’s final income tax return up to date of death and, where applicable, registering the deceased estate as a taxpayer for any income earned post-death (for example, rental, interest, or trading profits before the estate is wound up).
  7. Obtaining the Deceased Estate Compliance confirmation from the revenue authority once all taxes are settled, and then making final distributions.

Where a policy pays directly to a beneficiary and forms part of the estate duty base, the law may allocate the duty attributable to that policy to the beneficiary. The executor should communicate this clearly and account for it in the L&D process.

Deadlines, assessments, and interest

Estate duty is payable within one year of the date of death or within a shorter period after assessment if the assessment is issued during that first year. If payment is late, interest at the prescribed rate will accrue until settlement. Executors who anticipate liquidity constraints should engage early with the revenue authority to discuss extensions or staged realisations of assets. Efficient record-keeping and prompt valuations are the best defence against unnecessary interest and administration delays.

Worked examples

Example 1: Middle-class estate with a partial spousal bequest

Facts:

  • Gross property and deemed property: R8 500 000
  • Allowable debts and administration: R600 000
  • Bequest to spouse: R2 000 000
  • The remainder passes to children. No prior spouse to consider.

Calculation:

  1. Gross estate: R8 500 000
  2. Less debts and administration: R600 000 → R7 900 000
  3. Less spousal deduction: R2 000 000 → R5 900 000
  4. Less basic abatement: R3 500 000 → Dutiable amount: R2 400 000
  5. Estate duty at 20%: R480 000

Example 2: Full spousal rollover and portability

Facts:

  • First-dying spouse leaves everything to the surviving spouse; spousal deduction fully applies.
  • The first estate uses none of its basic abatement.
  • On the survivor’s death, the net estate after debts and allowable expenses is R9 200 000. Proper documents prove the first spouse’s unused abatement.

Calculation at second death:

  • Combined abatement (own plus ported): R7 000 000
  • Dutiable amount: R9 200 000 − R7 000 000 = R2 200 000
  • Estate duty at 20%: R440 000

Example 3: Large estate above the higher-rate threshold

Facts:

  • Dutiable amount after deductions and abatement: R42 000 000

Calculation:

  • 20% on first R30 000 000 = R6 000 000
  • 25% on excess R12 000 000 = R3 000 000
  • Total estate duty = R9 000 000

Practical checklist for families and executors

  1. Collect documents: Death certificate, identity documents, marriage certificate or proof of relationship, will, policy schedules, bank and investment statements, property deeds, vehicle registration documents, loan agreements, and business financials.
  2. Secure the estate: Safeguard physical assets, freeze accounts where appropriate, and inform insurers.
  3. Map the assets: Distinguish between estate property, deemed property, retirement interests, living annuities, and trust-related positions.
  4. Obtain valuations: Properties, private company shares, member’s interests, farms, and collectables must be valued reliably.
  5. List debts and costs: Home loans, personal loans, credit cards, tax liabilities, funeral charges, executor’s remuneration, and other administration expenses.
  6. Compute estate duty: Apply debts and allowable deductions; then the basic abatement; then the progressive rates.
  7. Evaluate CGT: Identify the deemed disposals at death, apply exemptions and rollovers, and compute the final income tax return.
  8. Handle retirement and insurance benefits: Liaise with funds and insurers about death benefits, beneficiary nominations, and tax certificates.
  9. Meet deadlines: Publish required notices, lodge the L&D account, file the estate duty return, and settle duty within statutory periods.
  10. Communicate with heirs: Explain the timeline, anticipated distributions, and any policy-related duty that may be allocated to specific beneficiaries.

Common mistakes (and how to avoid them)

  • Assuming “everything to spouse” eliminates tax forever. It often defers estate duty to the second death, where asset growth and the first inheritance can combine to create a larger tax bill. Use portability and consider lifetime planning.
  • Ignoring policy structure. Who owns and pays for a policy matters. In business planning, ensure buy-and-sell and key-person policies follow the statutory guidance.
  • Forgetting records for portability. Without first-estate documentation, the second estate might lose the unused abatement. File and preserve the L&D account and supporting proofs.
  • Leaving foreign assets for last. Cross-border taxes and probate requirements can delay finalisation. Identify foreign assets early and obtain local advice.
  • Not planning for liquidity. Estates rich in property but poor in cash may struggle to pay duty and expenses on time, inviting interest and distress sales. Consider liquidity solutions such as properly structured policies or retained cash reserves.
  • Overlooking trust loan accounts. Even when assets sit in a trust, a large loan receivable from the trust can enlarge the dutiable estate unless addressed with compliant planning.

Frequently asked questions

Do heirs pay tax for inheriting?
Ordinarily, no. Estate duty is levied on the estate itself. Heirs face CGT only if they later dispose of inherited capital assets at a gain.

Is transfer duty payable if I inherit a house?
Generally not. Inheritances enjoy a statutory exemption from transfer duty, although conveyancing and other administrative costs will still be payable.

Are retirement fund death benefits part of the estate?
Approved retirement fund death benefits are typically not part of the deceased estate for estate duty. They are allocated under pension law and taxed using the retirement lump sum death benefit tables.

What interest applies if estate duty is paid late?
The prescribed rate applies. Executors should aim to settle within statutory time frames and, where necessary, seek engagement with the authorities if liquidity is tight.

What documents prove spousal portability?
At minimum, the second estate’s executor should provide the first estate’s L&D account and supporting documents that show the unused portion of the basic abatement. Retain these records indefinitely.

Conclusion

Estate duty in South Africa is designed to be predictable and, with preparation, manageable. The pillars are simple: understand what forms part of the estate (including deemed property), apply the spousal deduction and other allowable deductions correctly, maximise the basic abatement (and portability where available), and compute CGT with all exclusions and rollovers in mind. Good paperwork, early valuations, and clear communication with heirs will shorten timelines, reduce interest exposure, and help families move forward.

Sources

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