Now we’ve got the terminology in place, let’s answer some of the most frequently asked questions.
An asset acquired by a SA resident heir by inheritance from a SA resident or non-resident deceased estate is what is described as a ‘capital receipt’ and is therefore not included in the heir’s gross income.
In South Africa, there is therefore no tax payable by the heirs who get an inheritance. Capital Gains Tax (CGT) is also not payable by the recipient of an inheritance. Estate Duty and CGT, where applicable, are usually payable by the estate. If it is a foreign estate, it will be subject to the taxes of its country of origin.
For tax purposes, yes, donations and gifts are treated differently to inheritances. For individuals, donations are subject to a Donations Tax of 20%, with an annual exemption of up to R100,000 of the value of all donations made during the tax year.
For example:
Non-residents are not subject to Donations Tax. However, in cases where the resident donor transfers his property to a non-resident and the resident donor fails to pay the Donations Tax, the non-resident and the resident will be jointly and severally liable for the tax. Donations between spouses are exempt from Donations Tax, as are donations made to certain public benefit organisations.
All income received or accrued before the deceased’s death is taxable in the hands of the deceased up until date of their death, and will be administered by the executor or administrator acting as the deceased’s representative taxpayer.
After the date of death of a person a new taxable entity comes into existence – the “estate”. The assets of the deceased will be held by the estate until the liquidation and distribution account has lain for inspection and become final as per the Administration of Estates Act after which the assets will be either handed over to the heirs or delivered to the trustee of a trust estate.
Income, which accrues to the estate after the death of the deceased but before the distribution of the assets to the beneficiaries, is dealt with separately under section 25 of the Income Tax Act.
The estate of a resident deceased individual is subject to 20% Estate Duty. For example after taking into account a deduction of R3.5 million against the net value of the estate. So, if the total net value of the estate is R4 million, Estate Duty will be dutiable on 20% of the amount exceeding R3.5 million, which amounts to R100,000 (20% of R500,000).
It is normally the responsibility of the executor to pay the duty as levied on the property of the deceased.
Resident individuals are subject to tax on their worldwide income (both sources in and out of South Africa). The exception to this rule is when there is Estate Duty on properties owned by a resident. Although a resident’s property is subject to Estate Duty wherever it is situated, properties located outside South Africa are not subject to Estate Duty if they were acquired prior to residency or were inherited and donated by a non-resident after the deceased became a permanent resident of the country. The calculation of Estate Duty is the same for both residents and non-residents.
Any Capital Gains Tax which would be due is payable before the inheritance is transferred to the beneficiaries. The acquisition of an asset does not give rise to a capital gain at the time of inheritance, and any capital gain or loss is only worked out when the asset is ultimately sold or got rid of.
South Africa’s inheritance laws apply to every person who owns property in South Africa.
The three main statutes governing inheritances in South Africa are:
All property located in South Africa is subject to these laws, and there are no separate laws for foreigners. Immoveable property is not treated any differently to other types of moveable assets for inheritance purposes. The Master of the High Court primarily deals with inheritance issues of foreigners and South African citizens; however if a dispute arises, then the case can be heard in any High Court of South Africa.
Foreigners who acquire immovable property in South Africa through purchase or inheritance must register their transfer of ownership by registering a deed of transfer with the Registrar of Deeds in whose area the property is situated. A conveyancer or specialist carries out the process of registering a deed of transfer who acts upon a power of attorney granted by the owner of the property. Foreigners should ensure their title deeds are endorsed ‘non-resident’ so that, if they eventually sell the property, they have no difficulty repatriating the proceeds.