Winding up a deceased estate can be complex. It’s important to understand the rules regarding taxes, duties, and the law of succession, even as an heir.
We ask the experts what you need to know when you get an inheritance.
Which taxes and duties are payable when you inherit?
In South Africa, the heirs of a deceased estate are not taxed. “The inheritance is simply seen as a capital injection into the beneficiary’s assets,” says Hannah Myburgh, a financial planner at Crue Invest.
Estate duty, on the other hand, is paid from cash in the estate and is seen as a wealth tax, or “death tax”, rather than an inheritance tax.
“Income tax, estate duty, and capital gains tax are due, and payable, by the deceased estate,” explains David Thomson, a certified financial planner and senior legal consultant at Sanlam Trust.
“The executor or administrator must make sure those taxes are paid before distributing the estate to any heir,” he adds.
If there are insufficient funds in the estate to fully settle all liabilities, the heirs might have to pay the shortfall, Thomson notes.
Beneficiaries will not receive their inheritance until the tax has been paid to the South African Revenue Service (SARS), after which the estate can be finalised. SARS will check and assess the final submission from the executor before payment falls due, he says.
How is estate duty calculated?
The dutiable amount of the deceased estate is the total value of the assets, minus liabilities and allowable expenses.
Assets comprise both immovable and movable property, including houses and vehicles, as well as bank accounts and cash.
“Liabilities are debts such as mortgage bonds, credit cards, and other claims against the estate. Estate expenses include executor’s and master’s fees,” elaborates Thomson.
Estate duty is levied at a flat rate of 20%, up to a maximum of R30m. The rate increases to 25% if the net estate is worth more than R30m. A general rebate, or abatement, of R3.5m is applied to the net value of the estate, to determine the taxable amount, Thompson explains.
An important exception is that any inheritance accrued to a spouse or permanent life partner is exempt from estate duty. “This exemption does not apply to any other heir, except where property is bequeathed to a public benefit organisation, which is tax-exempt,” he adds.
How does the law of succession work?
In South Africa, you may leave your assets to your beneficiary of choice, says Myburgh. This is called freedom of testation.
If a person dies with a valid will, they are deemed to have died testate, she says. “Without a will, the estate will be distributed in accordance with the Intestate Succession Act [81 of 1987], where the assets are distributed systematically among the beneficiaries.”
If the deceased leaves no dependents, the surviving spouse will inherit the entire estate. If they leave behind only children, the children will inherit equal shares of the deceased estate.
Where both a spouse and children are left behind, the estate will be distributed by determining the value of a “child’s share”. This means that the value of the estate is divided by the number of surviving spouses (in the case of a polygamous marriage) and children of the deceased.
Thomson cautions that the law of succession and its implications are complicated.
“Consult a specialist provider, such as a registered trust company, fiduciary practitioner, or registered attorney for advice,” he urges.