Your guide to understanding estate duty
Planning for the future involves more than just accumulating wealth; it requires understanding the intricacies of estate duty – the tax imposed by SARS on your estate after you die. Here’s what you need to know to ensure your legacy is preserved while minimising tax liabilities.
The ins and outs of estate duty exemptions
Your estate only becomes liable for estate duty when it surpasses the exemption or estate duty abatement limit, which stands at R3.5 million for individuals or the first deceased spouse or life partner. However, if you’re leaving your estate to a spouse or life partner, they might not need to use the exemption or might use only a portion of it, as transfers to surviving partners are exempt from duty. In such cases, any unused exemption from the estate of the first deceased partner can be applied to the estate of the surviving partner, potentially granting an estate duty exemption of up to R7 million.
Unpacking deductions to reduce liability
Before estate duty is calculated, specific deductions can be claimed against your estate. These include funeral expenses, outstanding debts (loans and taxes), administrative costs incurred by the executor, accrual claims from surviving spouses, and amounts bequeathed to a surviving spouse or life partner. Donations to public benefit organisations are also deductible. These deductions effectively reduce your estate’s dutiable value, which is the basis for calculating estate duty.
Navigating estate duty rates
Estate duty rates are progressive. Currently, the tax is set at 20% for the first R30 million of your estate’s dutiable value. If your estate’s value exceeds R30 million, the rate increases to 25%. It’s crucial to consider these rates while planning your estate to ensure your loved ones inherit as much as possible.
Settling the bill – paying estate duty
Typically, estate duty is paid using cash from the estate or from the sale of assets within the estate. If you’ve allocated specific bequests to heirs in your will, estate duty payments come after those allocations have been satisfied. However, if your estate’s assets fall short of covering debts, fees, and duties, adjustments might need to be made to fulfil these obligations.
Mitigating double taxation
If you have assets in foreign countries subject to similar estate duty taxation, South Africa’s double taxation agreements can prevent you from being taxed twice on the same asset. These agreements, maintained with countries such as the US and UK, and neighbouring nations, provide relief by ensuring you’re not liable for taxes in both jurisdictions.
Secure your legacy wisely
Understanding estate duty is fundament to preserving your hard-earned assets and providing for your loved ones after you die. By grasping the basics, exemptions, deductions, rates, and payment mechanisms, you can navigate the complex landscape of estate duty with confidence. However, it’s always advisable to consult with a professional estate planner or your accountant to make the most informed decisions.