Estate duty

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All sections referring to the Estate Duty Act No.45 of 1955 of SOUTH AFRICA
These are notes regarding the CALCULATION of estate duty
Disclaimer = you should still study these notes with your Act or textbook = only outline


Framework

PROPERTY (s3(2))
+ DEEMED PROPERTY (s3(3))
=GROSS VALUE OF ESTATE
– ALLOWABLE DEDUCTIONS (s4)
=NET VALUE
Abatement R3.5million
=DUTIABLE AMOUNT OF ESTATE

@ 20% taxed IF <=R30mil
OR
@25% taxed IF >R30mil


Explanation of framework elements:

Gross value of estate -section 3

  • Property – s3(2)

INCLUDES:

  • fiduciary & usufructuary interests (Note own valuation rules)
  • annuity (charges upon property)
  • annuity (NOT charged upon property) which accrued to another on death
  • BUT s3(2)(bA) Anti-avoidance: Death on/after 30 October 2019: contributions to the three retirement funds made on/after 1 March 2016 which was deducted under par 5 of 2nd Schedule against lump sum from fund upon death is also property for purposes of estate duty

EXCLUDEDS:

  • Certain assets if deceased NOT ordinarily resident in RSA at time of death
  • Benefits due to being part of membership of funds (lump sums and annuities)

Section 5 – Determining the value of the ALL property (including the deemed property):
*Price realised in a purchase and sale transaction (BUT if unlisted shares or interest in CC, then use fair market value on date of death)

* If not obtained property in a purchase and sale transaction = use fair market value on date of death

  • Deemed property – s3(3)

INCLUDES:

  • “Domestic policy” as defined in the Act
    Calculate = amount payed out LESS premiums paid by beneficiary + interest at 6% p.a. (compound)
    EXCLUDING:
    If paid to surviving spouse or child under an ante- or postnuptial contract

– or to a partner/co-shareholder/ co-member enabling that person to acquire the deceased’s  share and NO premium on the policy was paid or borne by the deceased

– or if policy was completely independent from deceased (therefore, no premium was paid or borne by deceased and no benefit to estate, family, or family company) e.g. key-man policy

  • Was exempt from donations tax under s56(1)(c) or (d) = donatio mortis causa / no benefit until death
  • Accrual claim
  • If the deceased was competent to dispose the property for his own benefit or for the benefit of his estate

Amounts allowed to be deducted -section 4

  • Reasonable funeral, tombstone, and death-bed expenses
  • Debts due within SA and settled out of property of estate
  • All costs of administration and liquidation of the estate
  • All expenditure incurred in carrying out the requirements of the Master or the Commissioner
  • Property situated outside the RSA and acquired by the deceased …

– (i) before he became ordinarily resident in the RSA for the 1st time; or

– (ii) by donation or inheritance from person who at that time was not ordinarily resident in the Republic; or

– (iii) out of profits or proceeds of any such property

  • Debts due to creditors outside RSA (settled out of property of the estate) which exceeds the value of any assets outside the RSA not included in estate
  • Bequests to PBO’s, certain other exempt institutions, the State or Municipality
  • Improvements to the property if…

– (i) at the expense of the person to whom such property accrues on the death of the deceased; and

– (ii) during the lifetime of the deceased and with his consent

(deduct increase in value not cost)

  • Improvements to property subject to limited interest which ceased upon death

– (i) at the expense of the person to whom such property accrues on the death of the deceased; and

– (ii) during the lifetime of the deceased and with his consent

(deduct increase in value not cost)

  • Accrual claims against estate
  • Limited rights to property created by spouse that died before deceased
  • Books, pictures, art… lent to the State under notarial deed for >= 30 years
  • Deemed property considered in the calculation of company shares or member’s interest
  • Property which accrues to the surviving spouse of the deceased:
    Provided that:
    – (i) reduced by amount that the surviving spouse is required in terms of the will of the deceased to dispose  to any other person or trust;
    – (ii) no deduction if the property accrues to a trust and trustee has a discretion to allocate such property or any income therefrom to any person other than the surviving spouse.

Net value LESS abatement of section 4A = Dutiable amount of estate

Deduct abatement of R3.5 million from the net value (gross value- deductions) + the unutilised portion of any predeceased spouse’s R3.5million abatement.