You’ve worked hard all your life and when you pass away, your expectation is that your assets transfer to your loved ones. However, if you fail to account for your tax liabilities it can detrimentally affect the liquidity in your estate and as a result – the financial legacy you leave your loved ones.
In order to prevent this, it’s important you understand what taxes your deceased estate will be liable for. These can include:
Estate duty
Estate Duty is basically inheritance tax that is payable by the deceased’s estate for the transference of assets from the deceased’s estate to their heirs or beneficiaries. The duty is levied on the dutiable amount of an estate that does not exceed R30 million at a rate of 20%. Estate duty is levied at a rate of 25% on the dutiable amount of an estate that exceeds R30 million.
How to minimise your Estate Duty
Section 4A of the Estate Duty Act states that an abatement of R3.5 million will be deducted from the net value of your deceased estate meaning that an amount equal to this rebate will not be subject to estate duty. If you are married, you can roll your R3.5 million abatement over to your spouse who will then have an effective R7 million abatement in the event of their passing if they are the sole beneficiary of the estate.
One of the key focuses of Estate Planning will be to calculate your estate duty liability by adding up the value of your property and deemed property, and then deducting the allowable expenses and exclusions as set out in the Act. In the context of the Act, it is required to take into account assets situated in both South Africa and abroad.
Income tax
When you pass away, your tax commitments, unfortunately, don’t. One of the first functions of your executor will be to settle your tax affairs with SARS. They will be required to file a pre-date of death assessment as well as a post-date of death assessment. The pre-date of death assessment will include all dividends, interest and rental income earned by your estate up until the expiration of the liquidation and distribution account advertisement. Any income earned by your deceased estate thereafter until the finalisation of your estate must be filed in your post-date assessment.
Capital gains tax
Capital gains tax will also affect your estate and the financial legacy you leave behind. capital gains tax is charged on the gains made from the sale or transfer of an asset that is deemed to have taken place on your death. Regardless of whether you die with a valid will in place, or whether the laws of intestacy apply, the bottom line is that your assets will be transferred to another person upon your death which, in turn, gives rise to a capital gains event.
All capital gains tax must be settled before the executor can distribute any inheritance owing to your heirs.The Income Tax Act makes provision for a once-off capital gains tax exclusion of R300 000 in the year of your passing, which means that the first R300 000 of the gain realised in your deceased estate will not be taxed. Any assets that you leave to your surviving spouse will be excluded for capital gains tax purposes, as well as the first R2 million gain on the sale of your primary residence. Personal use assets such as cash, retirement funds, and motor vehicles are also excluded for capital gains tax purposes.
Leave your loved ones in the best possible position
To ensure you leave your heirs and beneficiaries in the best financial position possible, it’s important to do thorough tax planning as part of your estate planning process. To find out more about estate planning, including creating a legally valid Will and structuring your estate to reduce your tax, speak to our estate planning team today. We provide an all-inclusive service and will structure your estate to ensure that your loved ones are protected and benefit from your careful planning.