“In this world nothing can be said to be certain, except death and taxes”. This famous saying attributed to Benjamin Franklin is bleak but true. However, with careful Estate Planning, a person may be able to reduce their tax to ensure their estate maximises the income it has accrued.
Tax is not equal in every country
While every country attempts to maximise its tax revenue, tax is not equal from country to country, which is why it’s important to consider which country you are investing your assets in – particularly when it comes to estate taxes.
Estate duties by another name
In South Africa, we call the taxes that need to be paid by an estate at the time of death, estate duties. In the UK this is known as inheritance tax and in the USA it’s called estate taxes.
The rules concerning estate duty taxes differ per country:
• In the UK, the first £325 000 of an estate is exempt from taxes, but after that, it is taxed at 40%. Similar to South Africa, everything that is bequeathed to a spouse is exempt from tax.
• In the USA, only the first $60 000 of an estate is exempt from taxes, with the rest is taxed on a sliding scale of up to 40%. If you have part of your estate as shares in the USA, these shares will be taxed in the USA, but the double taxation agreement prevents them from being affected by estate duties in South Africa. Unlike South Africa and the UK, there is no taxation relief for spousal bequests.
• In South Africa, from March 1 2018, estate duties are levied at 20% on the dutiable amount of an estate that does not exceed R30 million, and at 25% on the dutiable amount of the estate value exceeding R30 million
Minimising your estate duty and maximising your wealth
As the taxes that you pay after your death differ from country to country, it’s essential you decide where your wealth is invested and what type of offshore asset you want to invest in. Whatever you do, it’s important to remember that certain investments like offshore endowments still form part of your South African estate for estate duty purposes.
Many people often feel that trusts will mitigate estate duties but setting up an offshore trust can be an expensive route to follow and may not be suitable for your specific needs. It’s also important to note that the UK government has tightened the rules on trusts and if you have a trust, you will also need a trustee(s) to administer it.
Plan for your family’s future
It doesn’t matter how big or small your estate is, careful and considered Estate Planning will help reduce your tax obligations and ensure your assets are distributed exactly according to your wishes. For expert, confidential advice speak to our Estate Planning team about how to structure your estate to ensure your relatives are securely looked after.