South Africa: Taxation Of Estates To Also Be Revisited?

Last Updated: 21 August 2015
Article by Hanneke Farrand and Hannelie la Grange

Most Read Contributor in South Africa, September 2018


We previously commented on the recommendations made by the Davis Tax Committee ("DTC") relating to the taxation of trusts in our article entitled " Taxation of trusts to be revisited?" dated 28 July 2015. We set out below our comments on the recommendations made in the DTC First Interim Report on Estate Duty ("DTC Report") dealing with estate duty, capital gains tax ("CGT") and donations tax.

The Minister of Finance instructed the DTC to enquire into "the progressivity of the tax system and the role and continued relevance of estate duty to support a more equitable and progressive tax system", specifically taking into account the interaction between CGT and estate duty. To this end, the DTC Report was released for public comment on 13 July 2015.

General tax principles

Estate duty

Estate duty is payable in respect of the estate of every person who was ordinarily resident in South Africa at the date of his or her death as well as the South African situated assets of a person who was not ordinarily resident in South Africa at the date of his or her death.

Currently, in terms of section 4(q) of the Estate Duty Act No.45 of 1955 ("Estate Duty Act"), the value of all property which accrues to the surviving spouse, either in terms of a will or by intestate succession, is deductible from the gross estate of the deceased.

The Estate Duty Act further provides for a deduction of the value of any right in or to property situated outside South Africa which was acquired by the deceased before he or she became ordinarily resident in South Africa for the first time; after he became ordinarily resident by way of donation or inheritance from a person not ordinarily resident in South Africa; or out of profits and proceeds of any such property acquired out of such profits or proceeds.

The dutiable amount of any estate is calculated by deducting a R3,5 million primary abatement from the net value of the estate (primary abatement). The dutiable amount of the estate is subject to 20% estate duty. The deceased estate of a surviving spouse is permitted to utilise the unused portion of the primary abatement of any pre-deceased spouse (portable abatement).


South African residents are subject to CGT on capital gains arising from the disposal of any asset. Non-residents are subject to CGT on capital gains arising from the disposal of immovable property or an interest in immovable property situated in South Africa. CGT is levied at a rate of 13.65% in respect of individuals. An annual exclusion of R30 000 is available to a natural person in the year of assessment.

In terms of paragraph 40 of the Eighth Schedule to the Income Tax Act No.58 of 1962 ("Income Tax Act"), a deceased person will be deemed to have disposed of his or her assets to his or her estate for an amount equal to market value on the date of death. Assets disposed of to the surviving spouse of a deceased person, will, however, be exempt from CGT.

Paragraph 67 provides that a disposal by the estate of the first-dying spouse to the surviving spouse of any asset, will also be exempt from CGT.

Donations tax

Donations tax at a rate of 20% is payable on the value of any property disposed of under any donation by a South African "resident" as defined in the Income Tax Act. The first R100 000 of property donated in each year by a natural person is exempt from donations tax.

Section 56(1) of the Income Tax Act exempts, inter alia, the following donations from donations tax:

  • a donation to or for the benefit of a spouse of the donor not separated from the donor; or
  • a donation of property or a right in property situated outside South Africa if such property was acquired by the donor prior to becoming a South African resident; if the property was inherited or donated to a South African resident by a non-resident taxpayer; or out of funds from the disposal of the aforementioned property.

Recommendations in the DTC Report

The DTC recommends, inter alia, that the following amendments be made to the existing tax legislation:

  • The repeal of the exemption in terms of section 4(q) in respect of assets devolving on a surviving spouse should be considered.
  • The repeal of the portable abatement should be considered. The primary abatement of the surviving spouse may then be offset in the estate duty computation of the first-dying spouse. The estate of the surviving spouse would, as a consequence, forfeit some or all of the primary abatement in the future. The DTC acknowledges that double taxation may occur if a dutiable bequest is received by a surviving spouse who subsequently dies. This could be prevented by the development of a table excluding certain dutiable inheritances from the estate duty computation of a surviving spouse over a period of up to 10 years.
  • The primary abatement should be increased to R6 million per taxpayer. The surviving spouse will then be in a position to increase the total abatement to R12 million by electing to use the primary abatement in the computation of the estate duty of the first-dying spouse.
  • The exemption of donations between spouses should be amended to exclude all interests in immovable property or companies from its application.
  • The exemption in respect of donations of offshore assets acquired prior to becoming tax resident in South Africa, must be revisited in the light of South Africa's change to a residence basis of taxation in 2001.

Property left to surviving spouse

Section 4(q) was originally put in place to alleviate the hardship faced by spouses who may rely on the assets held in the name of the first-dying spouse for support. In the event that those assets fell within the first-dying spouse's estate, estate duty was leviable at the death of the first-dying spouse. This created liquidity problems in the first-dying's estate and, as a result, certain assets had to be realised in order to cover the estate duty liability in the event that the surviving spouse was not in a position to pay that liability out of his or her own funds.

The removal of the exemption in relation to property left to a surviving spouse could, effectively, result in estate duty being payable by the first-dying's estate in the event that the portable abatement is elected and the deceased's estate exceeds R12 million. As mentioned above, this could create liquidity problems in the case of the first-dying's estate in the event that such estate consist mainly of illiquid assets. Accordingly, the withdrawal of this exemption could give rise to the hardship that such exemption served to avoid in the first instance.

This recommendation also does not seem to be in line with the CGT exemptions relating to disposals between spouses.

The estate duty payable is, in our view, in any event, leviable on the surviving spouse's estate. Taking into account that the recommendation merely accelerates the timing of the payment of estate duty, such recommendation could create unnecessary complications for spouses.

Portable abatement

In our view, in the event that the first-dying spouse has the larger estate, electing to use the total abatement in the amount of R12 million in the estate of the first-dying, could be advantageous for such first-dying's estate. However, as acknowledged by the DTC, the estate of the surviving spouse could, as a consequence, forfeit a portion of or his or her entire primary abatement.

Donations between spouses

Donations between spouses of interests in immovable property or companies could be for reasons other than saving tax. For example, where a spouse has contributed to the repayments on a mortgage bond over immovable property, the other spouse may "donate" a portion of the ownership in such property to that spouse.

Donation of offshore assets

The current position where donations of offshore assets are exempt from donations tax make sense in light of the fact that such assets were originally acquired as a non-resident of South Africa and is not sourced from South Africa, therefore, such property should not fall within the donations tax "net".

As acknowledged by the DTC, this exemption is consistent with a similar exemption contained in the Estate Duty Act. Therefore, in our view, revisiting this exemption does not seem to be in line with the estate duty exemption.


The DTC Report specifically states that "the tax one of the most important government tools to redistribute income and address inequality". Although this statement follows the instructions received by the Minister of Finance, in our view, it does not take into account the diverse and far-reaching implications the recommended changes to the tax system may have on, not only high-net worth individuals, but all South Africans planning their estate.

The DTC Report was, however, released in draft and is, therefore, open to comment. Following the process of consultation, the recommendations in the DTC Report may not necessarily find their way into draft tax legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions