Estate Duty

Question 1

Introduction to Estate Duty in South Africa

Answer 1

When a person dies in South Africa, Estate Duty is levied on the transfer of their wealth (assets) to their beneficiaries

Question 2

On death of a natural person, three taxpayers are
involved:

Answer 2

1. The Deceased Person
2. The Deceased Estate
3. The Beneficiaries of the Deceased Person

Question 3

To whom does Estate Duty apply? (Section 2)

Answer 3

Estate Duty is payable on the estate of every person who dies and:

• Was ordinarily resident at their time of death (worldwide assets)
• Not ordinarily resident, but had property situated in the Republic (SA Assets)

Question 4

The Estate Duty Calculation follows these steps:

Question 5

Step 1: Property (Section 3(1) & 3(2))

Answer 5

This includes all property held by the person at the time of death, including:
- Limited interests (fiduciary interest, usufruct, bare dominium)
- Right to annuity

Question 6

What is excluded from the definition of property? (Section 3(1) & 3(2))

Answer 6

1. If the deceased was not ordinarily resident in SA
   - Immovable property situated outside SA
   - Movable property situated in SA
2. Benefits due and payable by or in consequence of membership or past membership of any pension fund, provident fund, pension preservation fund, provident preservation fund or retirement annuity fund.

Question 7

Step 2: Deemed Property (Section 3(3))

Question 8

Deemed property (Section 3(3)): Insurance policy (a)

Answer 8

A domestic life insurance policy on the deceased person’s life, regardless of the owner or beneficiary.

The value is calculated as
Policy proceeds minus premiums paid by the beneficiary minus interest on premiums (given)

Question 9

Exclusions from para (a)

Answer 9

1) The amount due under the policy is payable to a spouse or child i.t.o. an ante- or post-nuptial contract

Question 10

Exclusions to para (a)

Answer 10

2) The amount due under the policy is payable to a person who at the date of the deceased’s death was:

• A partner, or a co-shareholder or co-member of a company or CC which the deceased was also a shareholder/member, AND
• None of the premiums where paid by the deceased, AND
• The policy was taken for the purpose of enabling such person to acquire the whole or part of the deceased’s interest in the partnership, company or CC

Question 11

Exclusions to para (a)

Answer 11

The amount due under the policy, the commissioner is satisfied that:

• The policy was not taken out or by instruction of the deceased, AND
• None of the premiums were paid by the deceased, AND
• No amount is payable into the deceased’s estate i.t.o. the policy, AND
• No amount is payable to or used for the benefit of any relative, dependent or family, company of the deceased

Question 12

Deemed property (Section 3(3)): Donations made approaching or on death (b)

Answer 12

Property donated by the deceased which was exempt in terms of
s56(1)(c) or s56(1)(d)

Question 13

Deemed Property (Section 3(3)): Disposals prior to death (d)

Answer 13

Property that the deceased person was competent to dispose of for his own benefit or for the benefit of his estate, immediately prior to death.

Question 14

Deemed property (Section 3(3)): Accrual claim (cA)

Answer 14

An accrual claim under the Matrimonial Property Act.

Question 15

At what value are unlisted shares included?

Answer 15

Fair Market Value on the date of death

Question 16

At what value is property (excluding unlisted shares) included?

Answer 16

If sold during the course of liquidation of the deceased estate:
- Selling price

If NOT sold during the course of liquidation of the deceased estate:
- Fair Market Value on the date of death

Question 17

At what value are limited interests and annuities included

Answer 17

The value will be given to us

Question 18

At what value are Domestic Life Policies included?

Answer 18

Proceed - Premiums (paid by beneficiary) - Interest on premiums (given to us)

Question 19

Step 3: Determine the Gross Value of the Estate

Answer 19

The sum of Property and Deemed Property

Question 20

Step 4: Subtract any Allowable deductions

Question 21

Allowable deductions
Section 4(a) - (d)

Answer 21

○
(a) Funeral, tombstone, and deathbed expenses.
○
(b) Debts owed by the deceased to South African residents.
○
(c) Administration and liquidation costs of the estate.
○
(d) Expenditure for fulfilling Master and Commissioner requirements

Question 22

Allowable deductions: Property situated outside SA s4(e)

Answer 22

The value of the deceased persons property situated outside of SA that the deceased acquired:

a) Before becoming ordinarily resident in South Africa for the first time; OR

b) After becoming ordinarily resident in SA for the first time:

• By donation from a person who was not ordinarily resident in SA at the time of donation
• By inheritance from a person that was not ordinarily resident in SA at the time of his/her death

c) Has been acquired out of the profit or proceeds from the above deductible property

Question 23

Allowable deductions: Debt due to non-resident s4(f)

Answer 23

Any debt due by the deceased to persons who are not ordinarily resident in RSA that have been paid out of property included in the estate, to the extent that the value of such debt exceeds the value of the foreign property that is not included in the estate.

Question 24

Allowable deduction: Limited interests and annuities s4(g)

Answer 24

Any fiduciary, usufructuary, other similar interest or an annuity acquired by virtue of a donation that goes back to the donor at the date of the deceased’s death.

Example:

Question 25

Allowable deductions: Tax exempt entities s4(h)

Answer 25

Property accruing to tax-exempt entities, tax exempt PBOs or the State or municipality

Question 26

Allowable deduction: Improvement to property s4(i)/(j)

Answer 26

The value of any property included in the estate that has been enhanced by any improvement:
- At the expense of the beneficiary of the property.
- During the deceased’s lifetime, AND
- With the deceased’s consent.

Question 27

Allowable deductions: Accrual claim s4(IA)

Answer 27

Accrual claim against the estate by the surviving spouse

Question 28

Allowable deduction: Usufructuary or other like interests s4(m)

Answer 28

The value of a usufructuary or other like interest created by a predeceased spouse if that property formed part of the estate of the predeceased spouse and no deduction was available to the surviving spouse.

Question 29

Allowable deduction: Items lent to the SA government s4(o)

Answer 29

Any amount included in the estate for books, pictures, statutory or other art objects that have been lent to the SA government for 30 years under a notarial deed.

Question 30

Step 5: Calculate the Net Value of Estate

Answer 30

Gross Value of Estate less Allowable Deductions.

Question 31

Allowable deduction: Valuation of Unlisted shares s4(p)

Answer 31

Deemed property factored into the valuation of unlisted shares that have been included in the estate.

The value of that property will be deducted from the estate as it has effectively been included twice.

Question 32

Allowable Deductions: Property that accrues to the surviving spouse s4(q)

Answer 32

The value of the property accruing to the surviving spouse, provided it has not yet been deducted via the provisions above.

Question 33

Step 6: Subtract the Abatement (Section 4A)

Answer 33

R3.5 million is deducted from the Net Value of the Estate.

Question 34

At what rate is Estate Duty levied? (1st Schedule Paragraph 1)

Answer 34

●
20% of the dutiable amount up to R30 million.
●
25% of the dutiable amount exceeding R30 million.

Question 35

Step 7: Determine the Dutiable Value

Answer 35

Net Value of Estate less Abatement.

Question 36

Other Rebates: s16(c)

Answer 36

Foreign estate duties paid on South African property can be deducted from the South African estate duty, subject to limitations

Question 37

Payment of Estate Duty: s11-15

Answer 37

o
The executor is responsible for the calculation and payment of Estate Duty.

o
The estate duty paid may be recoverable from the beneficiary, in the following
instances:
- Fiduciary, usufructuary and other similar limited interested
- Annuities
- Domestic Insurance Policies
- Donations in contemplation of death (i.e. exempt donations)

Calculation: