SA's No 1 Insurance Blog

It’s a little ironic that even in death the bills keep rolling in (and let’s include death tax as the final bill you need to pay). It might have been the heavy burden of having to constantly pay bills your entire life that put you in the grave to begin with, right? But pay we must. So who will be standing in line to collect on the day your number is called? The Taxman will! In this blog post we’ll look at how to calculate your Estate Duty liability.

Just a quick heads up. Estate planning is a very technical financial planning exercise, and we always suggest chatting to a financial advisor. You can find an Old Mutual Financial Advisor in your area by clicking this link. In this blog post, we just want to touch on the high-level points of Estate Duty.

Cool, let’s get to it.

Estate Duty is calculated on the “dutiable amount” of your estate in accordance with provisions of the Estate Duty Act. Ok, so what does that mumbo jumbo really mean?

It means that it’s law, enforceable and you cannot avoid it.

How much are they going to hit me with? That’s a good question. We need to start with the steps involved in determining if you have an Estate Duty bill to begin with.

Let’s get into the steps involved in determining your “dutiable amount” because that is the key to working out how much you might need to cough up:

• Step 1: Work out the gross value of your Estate (all your “property and deemed property”)
• Step 2: Deduct from the gross value of the Estate any deductions that are allowed (below)
• Step 3: Knock off the R3,500 000 abatement granted to us all
• Step 4: Apply the rate of Estate Duty (currently 20%) to the dutiable amount.

In a nutshell, a liability for Estate Duty will arise if a taxpayer has a “dutiable amount”

Here is a quick example to simplify things:

1. R5,000 000 Gross value of Estate
2. Minus R500,000 Permitted deductions (covered below)
3. Minus R3,500 000 Abatement we all enjoy
4. R1,000 000 Dutiable amount
5. (20%) R200,000 Estate Duty payable

What does “property” and “deemed property” mean?

Before you can complete an Estate Duty calculation, by adding up all your property, you need to understand that “property” is stuff like your house and cars. Deemed property is the “not so obvious” stuff the Government considers to be your property.

“Property” includes the following:
• This can include actual property like a house, household goods, a car and a farm.
• Rights of enjoyment you held on your death (like an interest in a property)
• Any annuity (like rental income, you earned, from a house)

“Deemed” property includes the following:
• Proceeds from insurance policies
• Payment of benefit funds
• Property donated in anticipation of death (in case you thought you could play that card)
Once it has been determined what property needs to be included in your Estate for Estate Duty calculation purposes, valuations need to be carried out, and specific methods of evaluation are prescribed in the Act.

Now onto the deductions that are allowed 🙂

It would be a little lousy if the Taxman charged you 20% on your gross Estate, right? In terms of Section 4 of the Act, certain deductions against the total value of the property of your Estate are allowed.

Here is a list of some of the more common deductions which are permitted:

• Funeral and deathbed expenses
• Debts due by the deceased to persons ordinarily resident in South Africa
• Debts due to persons ordinarily outside of South Africa
• Administration expenses in winding up your Estate
• Expenditure incurred in connection with Estate Duty (like a cost of a property evaluation)
• Foreign property
• Bequests to public benefit organisations
• Improvements to property
• Claims in terms of the Matrimonial Property Act (surviving spouse claim)
• Amounts accruing to a surviving spouse

As mentioned above, once you have knocked off your “allowable deductions”, you are left with your net Estate value and we can move onto the last deduction – the abatement of R3,500 000.
If after that you have a “dutiable amount” apply 20% and that is what you owe the taxman.

Before you even look at taking out any life cover, make sure that you have spoken to a Financial Advisor and you’ve had an Estate planning exercise completed.

Need to speak to a Financial Advisor about your Estate planning? Click here & find one in your area today.

If you have any questions please don’t hesitate to contact us

Kind regards,

The InsuranceFundi Team

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