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When someone passes away there are four types of tax that come into play when dealing with their deceased estate: [1] Income Tax for the deceased individual (personal tax); [2] Capital Gains Tax; [3] Estate Duty; [4] Donations Tax (if applicable to the specific estate).

Income Tax (personal tax)

• The executor of the estate has a duty to make sure that all tax returns of the deceased are up to date with the South African Revenue Services (SARS).

• If any tax returns are outstanding the executor must request the relevant tax certificates/IRP5s from the respective institutions and send it onto the tax practitioner to submit to SARS.

• The estate will be charged income tax on any and all income, including dividends received, rental income or interest accrued, during the estate administration process.

• There are two types of assessments that must be carried out: [1] pre-date of death assessment (all income and deductions applicable to the deceased up to date of death); [2] post-date of death assessment (all income and deductions in the estate after date of death).

• NB: If the deceased was a pensioner at the time of death or even a few years prior, tax returns must still be completed and submitted to SARS so that SARS can advise the executor that taxes are in order and issue a Tax Compliance Certificate (TCC) for the estate.

Capital Gains Tax

• When someone passes away, the deceased is deemed to have disposed of their assets. This is because there has been a 'change of ownership' as the assets will now be inherited by the heir/s in the estate.

• This deemed 'change of ownership' attracts Capital Gains Tax for the estate, payable to SARS.

• If the executor of the estate sells property or receives property into the estate, these assets will attract Capital Gains Tax.

• Certain assets in a deceased estate are excluded from Capital Gains Tax. These include assets for personal use (with certain exceptions); assets inherited by the surviving spouse; proceeds from life cover; interests in pension, provident or retirement annuity funds.

• At death, there is a once-off exclusion of R300 000, so R300 000 of the gain or loss will not attract any tax on capital gains made.

• Any amount over and above R300 000 will have an inclusion rate of 40% and this amount will attract the applicable tax depending on the deceased’s marginal rate.

Estate Duty

• Estate duty is determined based on the gross value of the Estate.

• Each individual is granted a rebate of R3.5 million and Estate Duty is therefore only taxed on the value of the estate over R3.5 million.

• Estate duty is levied at 20% on the first R30 million and then 25% on the value above R30 million.

• In terms of Section 4(q) of the Estate Duty Act – the Estate Duty liability in respect of the assets inherited by the surviving spouse is postponed. This means that it is deemed that the deceased individual disposed of the assets on the day of his/her death but the liability for the tax is postponed until the death of the surviving spouse.

Donations Tax

• Donations tax does not form part of the calculation of an individual’s income tax liability and the donations tax calculation is done separately for each donation.

• Donations tax is not levied on an individual’s income, but on the capital transferred, usually in the form of assets.

• There are two parties involved in a donation: [1] the donor (person who makes the donation); [2] the donee (person who receives the donation).

• The donor is liable for payment of donation tax. If the donor fails to pay this tax within the prescribed period (normally by the end of the month following the month in which the donation took effect, or for a period as the Commissioner may allow), the donor and the donee are jointly and severally liable for the donations tax.

• Donations (taking into account certain exemptions, see below) are subject to donations tax of 20% on the value of the donation, applicable to donations made on or after 1 October 2001.

These donations are exempt from donations tax:

• Donations between spouses.

• Donations that are made and materialise only when the donor dies. For example, if a person has a life-threatening job.

• Donations which the donee will only receive the benefit of upon the death of the donor.

• Donations that are cancelled within six months of taking effect.

• Traditional councils, traditional communities and certain tribes.

• Property located outside the Republic of South Africa (RSA). This is only applicable if the donor acquired the property before becoming a resident of the RSA; through inheritance from someone who at the date of their death was not resident in the RSA; or by using funds from the sale of the property and replacing it with other properties.

• Exempt organisations include government, provincial administrations, municipalities, etc.