ESTATE DUTY EXPLAINED:

September 2021

Estate duty is calculated by adding and subtracting certain items. Broadly estate duty is calculated as follows:

ADD TOGETHER:

All property and deemed property of the deceased.  This will give a gross value of the estate of the deceased.

DEDUCT THE FOLLOWING:

  • The following can be deducted from the property and deemed property, namely:
  • Funeral costs and deathbed expenses; debts of the deceased; administration expenses; valuation fees; certain foreign property; usufruct or fideicommissum; bequests to public benefit organisations; improvements to property; maintenance claims; items/amounts that are inherited by a surviving spouse.
  • The balance that remains is the net value of the estate of the deceased.

SUBTRACT THE ABATEMENT

  • An abatement of R3,500,000 (Three Comma Five Million Rand) can be deducted from the net value of the estate in terms of Section 4A of the Estate Duty Act.  (It is an abatement that is afforded all deceased persons to reduce the value of their estates after death.)
  • The balance that remains is the dutiable estate for estate duty purposes. (In other words, the balance here is what you will pay estate duty on.)

HOW MUCH ESTATE DUTY?

  • The Estate Duty is levied on the dutiable value of an estate at a rate of 20% on the first R30 million and at a rate of 25% on the dutiable value of the estate above R30 million.
  • For example, if Jane’s dutiable estate is R1million, the calculation is 20% times R1million.  That is R200 000.
  • Estate Duty is payable when a person dies.  To determine how much estate duty is payable, the property as well as deemed property of the deceased is added together to determine a gross estate value.  From this gross estate value certain items can be deducted to determine the net value of the estate of the deceased.  As soon as the net value was determined, then twenty percent estate duty is payable on the balance that remains, referred to as the dutiable estate.

DEDUCTIONS:

FUNERAL COSTS AND DEATH BED EXPENSES

  • Funeral costs, and tombstone costs as well as medical expenses that were incurred after an illness of a deceased person, may be deducted from the gross estate value.  The requirement is that these costs must be reasonable because if it is unreasonable, SARS will not allow it to be deducted.
  • Where the deceased was married in community of property, the costs that may be deducted must normally be divided in two, because each party is liable for 50% of the costs of the communal estate.  However, the funeral, tombstone costs and death bed expenses are only payable by the deceased as the costs were only incurred on his/her behalf, as the other spouse is still alive.

ADMINISTRATION COSTS

  • Administration costs that are incurred for the administration and finalisation of the deceased’s estate may be deducted from the gross estate value.  These types of costs that are being incurred are normally advertisement costs.
  • There are two types of advertisements that are placed when dealing with the finalisation of a deceased’s estate:  Firstly, it must be advertised in a local newspaper where the deceased ordinarily resided that the person is deceased, so that creditors of the deceased can take note of the death so that they can prove a claim against the estate.  (Or if the deceased owed some persons money).  The other advertisement that is placed is an advertisement that is placed to advertise that the Liquidation and Distribution Account is available for inspection at the Master of the High Court.
  • These advertisement costs may be deducted.  Other costs than can be deducted here is amounts payable to the Master of the High Court, the executors fee, and valuations costs.  (Only one half of the executor’s fee is deductible where the parties were married in community of property.  If the deceased was single or married out of community of property, the full costs will be deductible. ).
  • There are also transfer costs that are incurred when an immovable property is transferred from the deceased estate to an heir. Transfer duty is not payable in this instance, but transfer costs are and it is these costs that are also deductible.

USUFRUCT OR FIDEICOMMISSUM (LIMITED RIGHTS)

Where the deceased possessed a usufruct or a similar right to a property (we refer to it as a limited right) and the limited right ceased with the death of the person who owned the limited right, the value of such a right is deductible from the gross value of the estate.

BEQUESTS TO PUBLIC BENEFIT ORGANISATIONS

Property left to a public benefit organisation (normally referred to as a public benefit organisation) which does not have to pay Income Tax, or to the state, can be deducted. (It will be unusual if somebody leaves property to the state, but the Acct optimistically makes provision for it!).

IMPROVEMENTS TO PROPERTY

Improvements effected to property at the expense of the person who inherits the property after the death of the deceased and these improvements were effected during the lifetime of the deceased with his/her approval, can be  deducted.  It is not the improvements itself that is deducted, but the value of which those improvements have increased the value of the property.  A sworn valuator will determine the value by which the property was improved, and that amount can be deducted.

DEBT PAYABLE BY THE DECEASED

Here we distinguish between two types of debt:

  • Amounts due to persons who normally reside in South Africa and
  • Amounts due to persons who normally reside outside South-Africa

AMOUNTS DUE TO PERSONS WHO NORMALLY RESIDE IN SOUTH AFRICA:

  • Monies that a deceased owed to person who normally reside in South Africa may be deducted from the gross value of the estate.  The debt of both parties who are married in community of property is shown as owing, but only 50% of the debt is deducted. 
  • Monies that the deceased owed to any institution or person who normally resides in our country can be deducted and includes  maintenance owing to a surviving spouse/child (whether the maintenance is due in terms of a court order or a settlement agreement); outstanding bond on property; car or furniture debt, clothing accounts and loans.
  • These amounts are being deducted from the gross value of the estate.

AMOUNTS OWING TO PERSON WHO NORMALLY RESIDES OUTSIDE SOUTH AFRICA

  • Monies that the deceased owed to persons who normally reside outside south Africa, can only be deducted from the gross estate value in so far as the total of the debt is more than the value of the assets of the deceased which was not included in the deceased’s estate. 
  • We are not going to expand on this particular deduction as we do not have enough space.  This is an unusual deduction and not the norm. We rather stick to the ordinary.

ITEMS THAT ARE INHERITED BY THE SURVIVING SPOUSE

Any amount that goes to a surviving spouse can be deducted in terms of Section 4Q.  There are a few limitations.

SHARES IN UNLISTED COMPANIES

These types of assets are also a bit more complicated to explain and we will very shortly mention here that so much as the value of the shares that a person holds in an unlisted company may be deducted.  For example, if somebody held 40% interest in an unlisted company, and the value of the company is R500 000, then 40% of the R500 000 may be deducted from the value of the deceased’s estate.

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