Estate Duty in South Africa: Who Pays It and How Much

Most estates never pay a cent

Estate duty is a tax on the estate itself, not on the person inheriting. South Africa has no inheritance tax, so a beneficiary does not pay tax on what they receive.

The first R3.5 million of the dutiable value of an estate is exempt under the section 4A abatement. Between spouses that can effectively become R7 million. The great majority of South African estates fall well below the threshold and pay nothing.

How it is calculated, in order

1. Start with the gross value of all property in the estate at the date of death.
2. Add deemed property. The most common item is the proceeds of policies on the deceased's life, which count even where they are paid directly to a named beneficiary and never enter the estate. An accrual claim due to the estate is also included.
3. Subtract the allowable deductions under section 4 to get the net value.
4. Subtract the section 4A abatement to get the dutiable amount.
5. Apply 20% to the dutiable amount up to R30 million, and 25% to anything above R30 million.

What can be deducted

• Funeral, tombstone and deathbed expenses.
• Debts due by the deceased at the date of death, payable in South Africa.
• The costs of administering and liquidating the estate, including the executor's remuneration and the Master's fee.
• Property that accrues to a surviving spouse, under section 4(q). This is the big one and it is why an estate left entirely to a spouse pays no estate duty at all, regardless of size.
• Bequests to approved public benefit organisations.
• Improvements made to the property by the person who now inherits it, in defined circumstances.

The spousal abatement rollover

Because everything left to a surviving spouse is deducted under section 4(q), the first dying spouse's estate frequently uses none of its R3.5 million abatement. Section 4A(2) to (4) allows the unused portion to be carried over to the surviving spouse's estate.

The practical result is that on the death of the second spouse the estate can have up to R7 million of abatement available. It is not automatic paperwork-wise: the executor of the second estate must show what was and was not used in the first, so keep the first estate's account.

The rollover is available between spouses. It is not available in respect of property passing to a life partner who is not a legally recognised spouse.

Who actually pays it

Normally the executor pays it out of the estate before distributing. There is an important exception. Where duty arises on property that never came into the executor's hands, such as a life policy paid directly to a named beneficiary, the Act allows the duty attributable to that property to be recovered from the person who received it.

So a beneficiary who receives a large policy payout directly can find themselves asked to contribute towards the estate duty on it. This surprises people and it is worth flagging early rather than after the money has been spent.

When it is due

Estate duty is due within one year of the date of death, or within 30 days of the date of assessment if the assessment is issued within that year. Interest runs at 6% a year on late payment.

The return is submitted to SARS on form REV267, together with the liquidation and distribution account. An estate duty addendum forms part of the account even where the calculation comes to nil.

Estate duty is not the only tax

Two other tax events are commonly mixed up with estate duty and are worth separating.

• Income tax. The deceased's final return to the date of death must be filed, and the estate itself may have income tax obligations for income earned afterwards.
• Capital gains tax. Death is treated as a disposal at market value under paragraph 40 of the Eighth Schedule, so gains can be realised even though nothing was sold. Assets going to a resident surviving spouse roll over instead.
• These are separate from estate duty and an estate can owe income tax or capital gains tax while owing no estate duty at all.

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