What is estate duty?

Key takeaways

  • Estates become liable for estate duty when the value of an estate (after deductions and estate expenses) exceeds the estate duty exemption or abatement. The part that exceeds the exemption is known as the dutiable estate.
  • Estate duty is payable at 20% of the first R30 million of dutiable estate and 25% of amounts higher than R30 million.
  • A number of deductions are allowed against an estate for:
    • Funeral expenses;
    • The costs the executor incurs;
    • The fees the executor charges;
    • Outstanding debts and taxes paid by the estate;
    • Accrual claims by surviving spouses; and
    • Amounts left to a surviving spouse or life partner.
  • Estate duty is typically paid by the executor from cash in the estate or assets sold to raise that cash.

Estate duty is tax levied by the South African Revenue Service on your estate after your death.

Your estate is only liable for estate duty if it exceeds the exemption or estate duty abatement – currently R3.5 million on the estate of a single person or the first dying spouse or life partner.

A spouse or life partner may not need to use the exemption, or may only use part of it, typically because they leave their entire estate, or the bulk of it, to the surviving spouse or life partner and anything left to a spouse or life partner is exempt from duty.

In this case, any unused portion of the exemption of in the estate of the first-dying spouse can be used by in the estate of the second-dying spouse. This means the estate second-dying spouse or life partner can enjoy an estate duty exemption of up to R7 million.

There may also be other property that is exempt from estate duty as well as some deductions you are allowed to make. After deducting these exemptions, what is known as your dutiable estate will be liable for estate duty.

Estate duty is levied at 20% of your dutiable estate up to R30 million.

If your dutiable estate is worth more than R30 million, your estate will pay estate duty at 25%.

Deductions allowed against your estate

Certain deductions are allowed against your estate before estate duty is applied. The most common deductions include:

  • Funeral and deathbed expenses, including the cost of a tombstone. The Master of the High Court will allow deductions for reasonable expenses.
  • Debts you owed when you died and that your estate now owes – such as your home loan, personal loans, credit cards, overdrafts, store accounts, and so on. It also includes any income tax and any capital gains tax your estate owes to the South African Revenue Service.
  • Administration expenses that the executor charges, including the cost of advertising for debtors and creditors, advertising that the estate account is open for inspection, the cost of valuing property, the executor’s fees and fees charged by the Master of the High Court.
  • An accrual claims by a surviving spouse married in community of property with accrual. This is a claim in terms of the Matrimonial Property Act.
  • Any amount you leave to your surviving spouse or a permanent life partner. This is an exemption in terms of section 4q of the Estate Duty Act.
  • Any amount you bequeath to a public benefit organisation.

How is estate duty paid?

Typically estate duty is paid out of any amount left in your estate after any bequests you have made to heirs in your will have been paid. However, if there is not enough money in your estate bequests may have to be cut to pay your debts, estate fees and estate duty.

The Estate Duty Act provides for a few exceptions. One of these arises when you name a beneficiary on your life policy – if estate duty is due on the policy proceeds once it has been deemed to be an asset in your estate, the beneficiary is liable to pay it and the executor will recover it from the beneficiary.

Double tax

If you have assets in a foreign country that are subject to the equivalent of estate duty in that country, you may be able to avoid paying tax twice on the same asset. South Africa has what are known as double taxation agreements with certain countries such as the United States and the United Kingdom as well as certain neighbouring countries that ensure you will not be held liable for tax in both countries.