When you die, SARS taxes the value of your estate. This is called estate duty. It sits at 20% on amounts above R3.5 million, and 25% above R30 million.
The good news is that this tax can be reduced. But you must act while you are still alive. Once you have passed away, the chance to plan is gone.
How Estate Duty Is Worked Out
First, add up everything you own. This includes property, cash, investments, and business interests.
Next, subtract your debts and funeral costs. Then apply your R3.5 million abatement. This portion of your estate is tax free.
If you are married, assets left to your spouse are exempt too. Your spouse can also inherit your unused abatement. Together, a couple can shelter up to R7 million from estate duty.
For an estate worth R10 million with no planning, the estate duty bill comes to R1.3 million. That is money your heirs will not receive. The strategies below can help lower that number.
Leave Assets to Your Spouse
South African law allows a full deduction for anything left to a surviving spouse. There is no limit on this amount.
This does not remove the tax. It simply delays it until your spouse passes away too. But it still creates real savings over time.
Your will should be structured carefully. Make sure your spouse still has enough to live on comfortably.
Use Both Spouses' Abatements
When the first spouse dies, their R3.5 million abatement can go unused. This happens if everything is left to the surviving spouse.
The surviving spouse can then claim this unused abatement later. This doubles the family's total abatement to R7 million.
Make sure your executor understands this rule. Your will should be structured to support it.
Give Assets Away During Your Lifetime
You can also reduce your estate by giving assets away now. Donations above R100,000 per year are taxed at 20%.
This is often cheaper than the 25% estate duty you may pay later. Giving away R100,000 every year for 20 years removes R2 million from your estate.
Donations to your spouse are exempt from this tax entirely.
Set Up a Living Trust
A living trust, known as an inter vivos trust, can hold your assets outside your estate. Anything the trust owns is not counted when you die.
Any growth on those assets also stays in the trust. Over many years, this can create a large saving.
You sell your assets to the trust at fair value. The trust then owes you this money as a loan. You slowly reduce this loan through yearly donations.
SARS watches trusts closely. Use a qualified attorney and keep the trust properly managed.
One warning: do not place your primary home inside a trust. You could lose valuable tax benefits tied to owning your home personally.
Keep Life Insurance Outside Your Estate
Life insurance can help pay estate duty, or it can help you avoid it. This depends on how the policy is set up.
If your policy pays out to a person or a trust, it stays outside your estate. If it pays out to your estate, it adds to your estate duty bill.
Cash from a policy also helps your family pay estate duty quickly. This tax must be paid within a year of death.
Leave a Gift to Charity
Money left to a registered charity is deducted from your estate. This lowers the total estate duty owed.
If giving back matters to you, this strategy offers a real tax benefit too.
What Does Not Work
Some shortcuts are not legal. Undervaluing your assets will attract penalties from SARS.
Fake or poorly run trusts can be ignored by SARS entirely. Giving everything away right before you die can also be reversed by law.
Start Planning Today
If your estate could be worth more than R3.5 million, it is time to plan. This is even more true for married couples with a R7 million threshold.
Many ordinary South Africans reach this mark simply by owning a home. Speaking to a specialist early gives you the best chance to protect your family's future.
Sign in to leave a comment.