Estate Duty Flashcards
(37 cards)
Introduction to Estate Duty in South Africa
When a person dies in South Africa, Estate Duty is levied on the transfer of their wealth (assets) to their beneficiaries
On death of a natural person, three taxpayers are
involved:
- The Deceased Person
- The Deceased Estate
- The Beneficiaries of the Deceased Person
To whom does Estate Duty apply? (Section 2)
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)
The Estate Duty Calculation follows these steps:
Step 1: Property (Section 3(1) & 3(2))
This includes all property held by the person at the time of death, including:
- Limited interests (fiduciary interest, usufruct, bare dominium)
- Right to annuity
What is excluded from the definition of property? (Section 3(1) & 3(2))
- If the deceased was not ordinarily resident in SA
- Immovable property situated outside SA
- Movable property situated in SA - 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.
Step 2: Deemed Property (Section 3(3))
Deemed property (Section 3(3)): Insurance policy (a)
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)
Exclusions from para (a)
1) The amount due under the policy is payable to a spouse or child i.t.o. an ante- or post-nuptial contract
Exclusions to para (a)
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
Exclusions to para (a)
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
Deemed property (Section 3(3)): Donations made approaching or on death (b)
Property donated by the deceased which was exempt in terms of
s56(1)(c) or s56(1)(d)
Deemed Property (Section 3(3)): Disposals prior to death (d)
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.
Deemed property (Section 3(3)): Accrual claim (cA)
An accrual claim under the Matrimonial Property Act.
At what value are unlisted shares included?
Fair Market Value on the date of death
At what value is property (excluding unlisted shares) included?
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
At what value are limited interests and annuities included
The value will be given to us
At what value are Domestic Life Policies included?
Proceed - Premiums (paid by beneficiary) - Interest on premiums (given to us)
Step 3: Determine the Gross Value of the Estate
The sum of Property and Deemed Property
Step 4: Subtract any Allowable deductions
Allowable deductions
Section 4(a) - (d)
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(a) Funeral, tombstone, and deathbed expenses.
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(b) Debts owed by the deceased to South African residents.
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(c) Administration and liquidation costs of the estate.
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(d) Expenditure for fulfilling Master and Commissioner requirements
Allowable deductions: Property situated outside SA s4(e)
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
Allowable deductions: Debt due to non-resident s4(f)
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.
Allowable deduction: Limited interests and annuities s4(g)
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:
