South Africa has no inheritance tax paid by the people who inherit. Instead, estate duty is charged on the estate of the person who has died, before it's shared out. Here's how SARS works it out.
Step 1: the gross value
Start with everything the person owned, in South Africa and abroad: property, investments, cash, vehicles and so on. Add deemed property, which includes certain life insurance policies paid out on death. Together these make the gross value of the estate.
Step 2: deductions
Take off the deductions allowed by section 4 of the Estate Duty Act: the debts the person owed at death, funeral costs, the executor's fees and the other costs of winding up the estate, among others. Two deductions matter especially:
- Everything left to a surviving spouse (section 4(q)) is deducted in full.
- Bequests to public benefit organisations (section 4(h)) are deducted too.
What's left is the net value of the estate.
Step 3: the abatement
Every estate deducts an abatement of R3.5 million (section 4A). If the person's spouse died before them, the abatement can be up to R7 million: see the spouse abatement roll-over. The result is the dutiable amount.
Step 4: the duty
- 20% of the dutiable amount up to R30 million.
- 25% of the dutiable amount above R30 million.
Worked examples
A R10 million estate with R500,000 of debts, left to the children: net value R9.5 million; less the R3.5 million abatement leaves R6 million; duty at 20% is R1,200,000.
The same estate, half left to a spouse: R4.75 million is deducted for the spouse, so the net value is R4.75 million; less R3.5 million leaves R1.25 million; duty is R250,000.
A R50 million estate with R1 million of debts: dutiable amount R45.5 million; 20% of R30 million is R6 million, plus 25% of R15.5 million is R3.875 million: R9,875,000 in all.
Who deals with it
The executor administers the estate under the supervision of the Master of the High Court, files the estate duty return with SARS and pays the duty from the estate. Try your own figures in our estate duty calculator.
Reducing estate duty
Because everything left to a spouse is deducted, and the spouse's estate can later use any abatement the first estate didn't, many married couples pay little or no estate duty on the first death. Bequests to public benefit organisations are also deducted in full. These are the two deductions the law offers; anything more involved, such as trusts, needs professional advice.
Sources
This is general information, not tax, legal or financial advice.