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

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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% on the first R30 000 000 of the dutiable estate and 25% above R30 000 000.
Every estate benefits from a basic abatement of R3 500 000 (commonly called the Section 4A deduction).
Any unused portion of a predeceased spouse’s abatement can be ported to the survivor, potentially increasing the allowance in the second estate to R7 000 000.
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 applicable at the time of payment.

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 of R3 500 000 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) of R3 500 000. 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 of up to R7 000 000. 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 R30 000 000
• 25% on the excess above R30 000 000

These rates remain unchanged for the 2025–2026 tax year, but tax legislation is always subject to amendment. 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, the CGT annual exclusion increases to R300 000.
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 primary residence exclusion of up to R2 000 000 of capital gain can apply to gains on a main home, 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 excluded from the deemed disposal.
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).

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 statutory requirements.

4) Family trusts

Assets already held in a properly administered trust are generally not the deceased’s property and are therefore excluded from the estate for estate duty. However, any loan account owing by the trust to the deceased is an asset of the estate. Anti-avoidance rules may deem certain property back into the estate where the deceased retained enjoyment rights or made certain dispositions within the legislated look-back period.

5) Immovable property and transfer duty

Property inherited by will or intestacy is exempt from transfer duty. However, conveyancing fees, rates clearances, transfer charges, and administration costs still apply.

6) Business interests and private company shares

Business interests must be properly valued. Shareholder and member resolutions are often required. Buy-and-sell agreements funded by life policies can provide liquidity and continuity if correctly structured.

Cross-border and residency considerations

If the deceased was ordinarily resident in South Africa, estate duty generally applies to worldwide assets. For non-residents, estate duty usually applies only to South African-situated property. Some foreign jurisdictions impose their own estate or inheritance taxes. Limited relief may be available through tax treaties or unilateral credits. Executors should identify foreign assets early and obtain jurisdiction-specific advice.

Who files and pays?

The executor is responsible for registering the estate, compiling the asset inventory, preparing and lodging the Liquidation and Distribution account, filing the Estate Duty Return (REV267), paying estate duty, submitting the deceased’s final income tax return, settling post-death income tax where applicable, and obtaining tax compliance confirmation before distributing assets.

Deadlines, assessments, and interest

Estate duty must be paid within one year of date of death, or within a shorter period after assessment if SARS issues an assessment during that year. Late payment attracts interest at the prescribed rate.

Worked examples

Example 1: Middle-class estate with partial spousal bequest
Dutiable amount after deductions and abatement: R2 400 000
Estate duty at 20%: R480 000

Example 2: Full spousal rollover and portability
Combined abatement at second death: R7 000 000
Dutiable amount: R2 200 000
Estate duty at 20%: R440 000

Example 3: Large estate above the higher-rate threshold
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

Collect documents, secure assets, map estate versus non-estate assets, obtain valuations, list debts and expenses, compute estate duty and CGT, manage retirement and insurance benefits, meet deadlines, and communicate clearly with heirs.

Common mistakes (and how to avoid them)

Assuming spousal bequests eliminate tax forever, ignoring policy ownership, losing portability records, delaying foreign asset disclosure, failing to plan for liquidity, and overlooking trust loan accounts.

Frequently asked questions

Heirs do not ordinarily pay tax for inheriting.
Inherited property is generally exempt from transfer duty.
Retirement fund benefits are not usually part of the estate.
Late estate duty attracts interest at the prescribed rate.
Portability requires documentary proof from the first estate.

Conclusion

Estate duty in South Africa is predictable and manageable with proper planning. Understanding inclusions, deductions, abatements, portability, and CGT rules — supported by good documentation and early action — can significantly reduce delays, interest, and family stress.

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Sources

• South African Revenue Service (SARS), “Estate Duty” (overview and rates): https://www.sars.gov.za/types-of-tax/estate-duty/
• SARS, “Frequently Asked Questions – Deceased Estates” (LAPD-IT-G31): https://www.sars.gov.za/wp-content/uploads/Ops/Guides/LAPD-IT-G31-FAQs-on-Deceased-Estates.pdf
• SARS, “Taxation in South Africa” (Guide; spousal deduction overview): https://www.sars.gov.za/wp-content/uploads/Ops/Guides/Legal-Pub-Guide-Gen01-Taxation-in-South-Africa.pdf
• SARS, “Interpretation Note 134: Disposal of assets by deceased person, deceased estate and transfer of assets between spouses”: https://www.sars.gov.za/wp-content/uploads/Legal/Notes/Legal-IntR-IN-134-Disposal-of-assets-by-deceased-person-deceased-estate-and-transfer-of-assets-between-spouses.pdf
• Estate Duty Act 45 of 1955: https://www.gov.za/sites/default/files/gcis_document/201505/act-45-1955.pdf
• SARS, “Transfer Duty Guide” (inheritance exemption): https://www.sars.gov.za/wp-content/uploads/Ops/Guides/Legal-Pub-Guide-TD01-Transfer-Duty-Guide.pdf
• SARS, “Estate Duty Implications on Key-Man Policies” (External Guide): https://www.sars.gov.za/wp-content/uploads/Ops/Guides/GEN-ED-01-G02-Estate-Duty-Implications-on-Key-Man-Policies-External-Guide.pdf
• SARS, “Estate Duty Implications on Buy-and-Sell Agreements” (External Guide): https://www.sars.gov.za/wp-content/uploads/Ops/Guides/GEN-ED-01-G01-Estate-Duty-Implications-on-Buy-and-Sell-Agreements-External-Guide.pdf
• Fiduciary Institute of Southern Africa (FISA) / SARS, “Deceased Estate Presentation” (process overview): https://www.fisa.net.za/wp-content/uploads/2023/11/SARS-Deceased_Estate_Presentation_6_November_2023.pdf