Death And Taxes: Tax Liability Upon Death Of A Natural Person In South Africa

Mohamed Raees Hussain | Attorney – Legal Division

The famous quote by Benjamin Franklin, “In this world, nothing can be said to be certain, except death and taxes”, holds true even in a South African context as there are various taxes which are payable even when a person passes away.

This article will explore some of the different types of taxes that can be levied on an individual’s estate in South Africa.

 

With death, comes not only the grief of the family left behind, but also the various legal formalities which must be complied with, including the administration of the estate of the deceased which entails the payment of any debts of the deceased and thereafter the distribution of the remaining portion of the deceased’s assets to his or her heirs. These formalities are undertaken by the person appointed as Executor of the deceased’s estate in terms of the Last Will and Testament.

Depending on the value and type of assets in the deceased’s estate, there are various expenses which the estate becomes liable for. Some of these expenses include:

  • Debts of the deceased.
  • Executor’s fees.
  • Master’s fee, payable to the Master of the High Court for facilitating the administration of the deceased estate.
  • Transfer fees which are levied on the transfer of immovable property.
  • Various taxes.

One of the requirements for the release of the Executor from his or her obligations and duties in terms of the administration of a deceased estate is the submission of a Tax Clearance Certificate from the South African Revenue Service (“SARS”) to the Master of the High Court which confirms that there is no outstanding tax liability for the deceased and the deceased’s estate.

There are various tax liabilities that a deceased’s estate will be liable for, which includes inter-alia: 

  1. Income Tax
  • Prior to 1 March 2016
    • The Executor in a deceased estate was only responsible for the income tax submissions up to the date of death.
    • Any income earned after the date of death was required to be reflected by the heirs to the estate in their own personal tax returns.
  • After 1 March 2016
    • In 2016, arising from an amendment to legislation, the Executor in a deceased estate became responsible for the income tax submission up to date of death and would now need to register the deceased estate as a new taxpayer and submit tax returns for all income earned after date of death up to the finalization of the estate.
    • The deceased estate once registered as a taxpayer is liable for tax at the rate applicable to an individual taxpayer.
  1. Capital Gains Tax
  • Capital gains tax (“CGT”) is applicable in any deceased estate where the deceased held assets which would be subject to CGT, and which includes amongst other assets; immovable property, shares, and business interests.
  • Death is considered to be a trigger of CGT and as such the assets subject to CGT would need to be reflected in the final tax return. However, this is subject to an exception wherein the assets subject to CGT are bequeathed to the surviving spouse and in this case, the capital gain or loss will be rolled over to the estate of the surviving spouse.
  • The CGT calculation will be based on the rules governing same and as such certain exclusions would apply, such as the exclusion for a primary residence.
  1. Estate Duty
  • Estate duty is levied at 20% of the net value of an estate on the first R30,000,000.00 (thirty million rand), and at 25% for estates which exceed R30,000,000.00 (thirty million rand).
  • Estate duty is subject to a basic deduction of R3,500,000.00 (three million five hundred thousand rand).
  • A full list of the deductions available in calculating Estate duty is found in Section 4 of the Estate Duty Act, 45 of 1955.

Death is inevitable and based on the complexities of the tax obligations applicable on a deceased’s estate, it is important for a deceased’s family or the Executor to seek qualified advice from the necessary professionals to ensure that all tax obligations are met in the administration of a deceased estate.

 

*The above is for general information purposes and should not be construed as advice*