Categories: taxTax News

Understanding Estate Duty and Deceased Estates

Published by
William Dube

Navigating the intricacies of estate duty regulations can be a challenging task for many individuals and families. With the recent announcement of amendments to the South African estate duty regulations, it is more important than ever to understand the implications of these changes and how they may affect estate planning. This FAQ article provides answers to the most common questions about the new regulations, aiming to simplify the complexities of estate administration and assist taxpayers in making informed decisions about their financial future.

  1. What is estate duty? Estate duty is the duty levied under the Estate Duty Act, 1955, on the dutiable amount of an estate of a deceased person.
  2. What is the estate duty rate? The duty is levied at a rate of 20% on the dutiable amount of an estate that does not exceed R30 million, and at a rate of 25% on the dutiable amount of an estate that exceeds R30 million.
  3. How is estate duty calculated? Estate duty is calculated by determining the gross value of the estate, subtracting allowable deductions and expenses, and then applying the appropriate rate of duty (20% or 25%) depending on the dutiable amount of the estate.
  4. What is included in an estate? An estate includes all property and deemed property of the deceased person, situated in and outside South Africa, as at the date of death. For a deceased person not ordinarily resident in South Africa, any property situated outside South Africa will be excluded.
  5. What is the meaning of “property”? Property, as defined in the Estate Duty Act, includes any right in or to movable or immovable property, both corporeal and incorporeal. Crypto assets are also regarded as movable, incorporeal property in the estate of the deceased person and are included for estate duty purposes.
  6. What property is excluded from an estate? Exclusions depend on whether the deceased person was ordinarily resident in South Africa at the time of death or not. Ordinarily resident individuals have their property in South Africa, as well as some property situated outside South Africa, taxable. Non-residents have property situated outside South Africa excluded, but if they had assets in South Africa, they will have a South African estate for estate duty purposes.
  7. Are there any exemptions from estate duty? There are no exemptions from estate duty, only exclusions of certain property from an estate.
  8. What impact can the matrimonial property regime have on the estate duty calculation of the deceased? The matrimonial property regime under which the deceased person was married impacts the calculation of estate duty, as it affects how the estate is divided and how any claims are made between the spouses.
  9. What deductions are available to reduce the value of an estate? There is a range of deductions available to reduce the gross value of the estate, including funeral expenses, debts owed in South Africa, administration and liquidation costs, and bequests to certain institutions, among others.
  10. How is the dutiable amount of an estate determined? The dutiable amount of an estate is determined by subtracting the net value of the estate from an amount of R3,5 million, provided for under section 4A of the Estate Duty Act. Estate duty is then calculated on the dutiable amount, if any.
  11. What is the value of the section 4A abatement? The value of the section 4A abatement is R3,5 million.
  12. What is the impact on the section 4A abatement if the deceased had a predeceased spouse at the time of death? The deceased person can claim a rebate of R7 million (R3,5 million x 2) less any amount used by the predeceased spouse’s estate.
  13. Can a deceased person claim a section 4A(2) abatement in respect of a previously deceased spouse who was not ordinarily resident in South Africa? Yes, the Estate Duty Act does not require the predeceased spouse to be ordinarily resident for the latter dying spouse to make use of any unused portion of the R3,5 million.
  14. Who qualifies as a “spouse” for estate duty purposes? A spouse includes a spouse in a legally recognized marriage, a partner in a customary union, or a partner in a same-sex or opposite-sex civil partnership.
  15. What is the impact of donations tax on estate duty? Donations tax is payable on any donations made during the deceased person’s lifetime. However, donations made within three years before the deceased person’s death are taken into account when determining the estate duty payable, with certain exceptions.
  16. How does the Estate Duty Act affect bequests to public benefit organizations (PBOs)? Bequests made to qualifying PBOs are deductible from the value of the estate, thus reducing the estate duty payable.
  17. Are life insurance policies subject to estate duty? Life insurance policies are subject to estate duty, but certain exemptions apply. Policies that are payable to a surviving spouse or qualifying PBO are exempt from estate duty.
  18. Who is responsible for paying the estate duty? The executor of the deceased person’s estate is responsible for paying the estate duty. The executor must pay the duty within one year of the date of death or within a further extended period as approved by the Commissioner for the South African Revenue Service (SARS).
  19. Can estate duty be paid in installments? Yes, SARS may allow estate duty to be paid in installments if the executor can demonstrate that the estate’s liquidity is insufficient to pay the full amount in a single payment.
  20. What are the consequences of non-payment or late payment of estate duty? Interest and penalties may be imposed by SARS for non-payment or late payment of estate duty.
  21. Where can I find more information on estate duty and deceased estates in South Africa? For more information on estate duty and deceased estates, visit the South African Revenue Service (SARS) website at www.sars.gov.za or consult a professional estate planner or tax advisor.
  22. Please note that this FAQ is for general informational purposes only and is not intended as professional advice. Always consult a tax advisor or legal professional for advice specific to your situation.
William Dube

William Dube is a finance and economic news expert with over 10 years of experience in economic anaylsis, financial product assessment and market analysis. With a numerous certificates from prestigious universities including but not limited to Yale University and the University of Pennyslivenia. William specializes in providing insightful news developments in South Africa and commentary on investment strategies, risk management, and global economic trends. You can contact him on william@rateweb.co.za