SILKE: South African

Income Tax
2018
Chapter 27
Estate duty

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 Overview
Estate Duty Act 45 of 1955
• When a person dies, his net estate (assets
less liabilities)
• wealth is transferred - deceased to
beneficiaries
• The distribution is usually made in terms of
the deceased’s will; the net estate is
distributed according - laws of intestate
succession.

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 Overview
Estate Duty Act 45 of 1955
• ‘estate duty’ - estate of a deceased person
• 20% of the dutiable amount of the estate.
• Estate duty net value of an estate exceeds
R3 500 000, as an abatement of R3 500 000
may be deducted
• a surviving spouse of a deceased may be
entitled to a further R3 500 000

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Calculation of Estate duty

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 Property – s3(2)
• ordinarily resident in South Africa at the date of his
death - is included as property in his estate.
• To determine whether a person was ordinarily
resident in South Africa - SA must be the country
where the deceased had most regular place of
residence, and a degree of permanence or continuity
must be attached to the place of residence
• deceased who was not ordinarily resident in South
Africa at the date of his death will be liable in South
Africa for estate duty on SA property only

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 Property – s3(2)
• Property Includes:
 Actual property owned by the deceased at the date of his
death - for example, fixed property, shares, fixed deposits
(cash), goodwill, motor vehicles, furniture and household
effects and patents.
 Income earned prior to death will form part of the property in
the estate.
 Fiduciary interests
 A usufructuary interest (usufruct) in property
 Full ownership of property consists of two parts:
– Usufruct: The use of the fruit or income from the
property. The holder of this limited interest cannot dispose of
the property.

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 Property – s3(2)
– Bare dominium: Ownership of property without the benefit
of the use of the fruit or income from that property.
A right to an annuity charged upon property
Any other right to an annuity enjoyed by the deceased
immediately prior to his death that accrued to another person on
his death
So much of all the contributions made by the deceased in
consequence of membership or past membership of any pension
fund, provident fund, or retirement annuity fund, as was not
allowed as a deduction - who dies on or after 1 January 2016 and
in respect of contributions made on or after 1 March 2015

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 Property deemed to be property – s3(3)
1) Domestic policies of insurance on the life of the
deceased (s3(3)(a), definitions of ‘child’, ‘domestic
policy’, ‘relative’ and ‘family company’)
• four examples
• reduced by the amount of any premiums - interest on the premiums,
calculated at 6% per annum from the date of payment until the date of
death
• deceased was married in community of property - 50% of the premiums on
the policy are deemed to have been paid by the surviving spouse. Half the
premiums paid plus interest at 6% can therefore be deducted from the
proceeds of the policy

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 Property deemed to be property – s3(3)
 Not included:
• a duly registered ante-nuptial or post-nuptial contract
• When the proceeds are payable to a person who, at the date of the
deceased’s death, was ;a partner of the deceased, or a co-shareholder in
a company, or a co-member in a close corporation provided that
– the deceased paid no premium on the policy, and
– the policy was taken out for the purpose of enabling that person to
acquire the deceased’s share in the partnership, company
or close corporation (proviso (iA) to s 3(3)(a)).
• Except for the above exemptions, where the Commissioner is satisfied that
– the policy was not taken out by or at the instruction of the
deceased, and
– no premiums were borne or paid by the deceased, and
– no amount in terms of the policy is payable to the estate of the
deceased, and
– no amount in terms of the policy is payable to or used for the
benefit of any relative or depen­d­ant of the deceased or any family
company of the deceased (proviso (ii) of s 3(3)(a)).
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 Property deemed to be property – s3(3)
Refer to example 27.1 page 926

2) Property donated under a donatio mortis causa

(s 3(3)(b))
•A donatio mortis causa is a donation in contemplation of death
•Donation takes effect only if the donor dies - No donations tax is payable on
these donations if the donation is exempt in terms of s 56(1)(c)
•The property is then included in the deceased’s estate as deemed property
(s 3(3)(b)).
•Property donated where no benefit is passed until the death of the deceased is
also included as deemed property, if the donation was exempt in terms of
s 56(1)(d)

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 Property deemed to be property – s3(3)
3) A claim against the surviving spouse in terms of s 3 of
the Matrimonial Property Act 88 of 1984 (s 3(3)(cA))
•If the deceased was married out of community of property under the
accrual system, the spouses retain their respective estates at the
beginning of the marriage.
•If the estate of the deceased has a claim against the surviving spouse
(the surviving spouse’s accrual is higher), the accrual claim is deemed
property in the estate of the deceased (s 3(3)(cA)). This claim will be
deductible in the deceased estate (s 4(q) – see 27.6.15).
Refer to example 27.2 page 927

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 Property deemed to be property – s3(3)
4) Property that the deceased was competent to
dispose of for his own benefit (s 3(3)(d))
• Property that the deceased was competent to dispose of for his own
benefit or for the benefit of his estate immediately prior to his death,
is deemed to be property in his estate (s 3(3)(d)).

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 Valuation of property – s5
Valuation rules:
1) Property sold (s 5(1)(a))
2) Property not sold (ss 5(1)(e), 5(1)(g) and 9(1))
3) Unlisted shares (s 5(1)(f)bis)
4)Immovable property on which bona fide farming operations
take place (s 5(1A))
5)Fiduciary, usufructuary and other like interests in property
(ss 5(1)(b) and 5(2))
6)Right to an annuity (s 5(1))
7)Bare dominium (s 5(1)(f))
8)Property that the deceased was competent to dispose of
for his own benefit (s 5(1)(f)ter)
9)Life expectancy of persons other than natural persons
(s 5(3))
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 Valuation of property – s5
Valuation rules (continued):
- First provisio
- Second proviso
-Third proviso
Refer to example 27.4 page 929

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 Valuation of property – s5
Valuation rules (continued):
-First provisio
When the holder of a usufruct over a property dies, the holder of the bare dominium
usually acquires full ownership of the property.
If the bare dominium holder previously paid any consideration for the bare dominium,
the value of the usufruct must be reduced by the amount of the consideration
-Second proviso
when the bare dominium holder becomes the full owner of the property upon the death
of the holder of the usufruct. The value of the usufruct passing to the bare dominium
holder cannot exceed the difference between
the fair market value of that property as at the date of the deceased’s death, and
the value of the bare dominium as at the date when it was obtained (the date on which
the deceased’s usufructuary interest was created).
-Third proviso
If the person to whom a limited interest in property is transferred cannot be ascertained
until some future date (for example unborn heirs), a life expectancy of 50 years should
be used for that person.
Refer to example 27.4 page 929

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Second provisio

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Second provisio

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 Valuation of property – s5
Valuation rules (continued):
6)Right to an annuity (s 5(1)) – An annuity is a fixed annual amount paid
by one person to another. If the deceased was the recipient of an annuity at the date
of death, it must be determined whether any benefit is transferred to someone else in
terms of the annuity after the deceased died.
7)Right to an annuity charged upon property – refer to example 27.5 page 930
8)Right to an annuity not charged upon property - refer to example 27.6 page 931
9)Right to an annuity from a policy of insurance on the life of the deceased - refer to
example 27.7 page 932
7) Bare dominium (s 5(1)(f)) - If the deceased was the holder of a bare
dominium in property, the full market value of the property will not be included in
his estate. The value of the bare dominium will be the difference between the fair
market value of the property at the date of his death and the value of the
usufructuary interest as calculated over the life expectancy of the usufruct holder

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 Allowable deductions – s4
Deductions are as follows:
1)Funeral and death-bed expenses (s 4(a))
2)Debts due within South Africa (s 4(b))
3)Costs of administration and liquidation (s 4 (c))
4) Costs of carrying out the requirements of the Master or the
Commissioner (s 4(d))
•Foreign property (s 4(e))
•Debts due to creditors outside South Africa (s 4(f))
•Limited interests reverting to donor (s 4(g))
1)Bequests to certain charitable bodies (s 4(h))
2) Improvements made to inherited property by heir or legatee
(s 4(i))
3) Enhancement in the value of fiduciary, usufructuary or other
like interest in property through improvements by beneficiary
(s 4(j))

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 Allowable deductions – s4
11) Accrual claims under s 3 of the Matrimonial Property Act 88
of 1984 (s 4(lA))
12) Usufructuary or other like interest created by predeceased
spouse (ss 3(2)(a), 4(q) and 4(m))
13) Books, pictures, statuary and other works of art (s 4(o))
14) Policy proceeds taken into account in the valuation of
shares (s 4(p))
15) Amounts accruing to the surviving spouse (s 4(q), definition
of ‘spouse’)
16) Abatement (s 4A) (s 4A(1)).
Refer to example 27.12 – 27.16 – page 937 to 939

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 Other rebates
 If the estate qualifies, the following rebates
could be deducted from the amount of estate
duty:
– transfer duty paid
– foreign death duties paid, and
– rapid succession rebate.

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 Transfer duty paid (s 16(a))
 If a beneficiary receives property from an estate and is liable
for both estate duty and transfer duty in respect of that
property, the transfer duty can be deducted from the estate
duty as calculated (s 16(a)).
Foreign death duties and double tax agreements (s 16(c))
 Foreign property owned by a deceased who was ordinarily resident in
SA at the date of death could be included in his estate. If the foreign
property is not deductible (see 27.6.5), the deceased will be liable for
estate duty on it. However, it is possible that the property has already
attracted death duties in the other foreign country.

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 Rapid succession rebate (s 2(2) and the First
Schedule to the Act)
 The rapid succession rebate is a relief measure available
when the same property is subject to estate duty more
than once within a period of ten years.
 To qualify for the rebate
- the first person must have died not more than ten years
before the death of the second person, and
- the second person must have borne the estate duty
attributable to the property in the estate of the first
person. If the second person was a residuary heir in the
estate of the first, he is regarded as having borne the
estate duty attributable to the property he inherited.
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 Rapid succession rebate (s 2(2) and the First
Schedule to the Act)
 The percentages are as follows:
If the deceased dies within two years of the death of the first
person 100%
If the deceased dies more than two years, but not more than four
years after the death of the first person
80%
If the deceased dies more than four years, but not more than six
years after the death of the first person
60%
If the deceased dies more than six years, but not more than eight
years after the death of the first person
40%
If the deceased dies more than eight years, but not more than ten
years after the death of the first person
20%

 Refer to example 27.17 page 941

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 Marriage in community of property
 When a couple is married in community of property, the assets and
liabilities of both spouses constitute their joint estate.
 When the marriage ends due to the death of one of the spouses, - a
half-share of the joint estate. The assets and liabilities of both
spouses are therefore combined and the surviving spouse’s half is
deducted in terms of s 4(q).
 Refer to example 27.19 page 943

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 Assessment and payment of estate duty (ss 7, 9, 9C,
10, 12, 14, 17 and 18) (ss 187(2) and 187(3)(c) of the
Tax Administration Act)
 The executor of an estate has the responsibility for the submission of the
estate duty return (s 7). After the submission of the estate duty return,
the Commissioner issues an estate duty notice of assessment to the
executor or to the person responsible for the payment of the duty (s 9).
The duty is pay­able on a date which may be prescribed in the notice of
assessment (s 9C). If the Commissioner is dissatisfied with any value at
which property is reflected, the Commissioner should adjust that value
and raise the assessment accordingly (s 9(1)(1A)).
 Interest at the rate of 6% per annum will be levied on any unpaid estate
duty liability. The interest will be calculated from the earlier of
- 30 days after the date stated in the notice of assessment, or
- 12 months after the date of death of the deceased (s 10(1)).

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 Administrative provisions (ss 6, 26, 28 and 29)
 The Commissioner is charged with the administration of the Act
(s 6). To assist the Commissioner in this regard, the Minister of
Finance may make regulations for the better carrying out of the
objects and purposes of the Act (s 29). Any administrative
requirements and procedures not provided for in the Act will be
regulated by the Tax Administration Act, 2011 (s 6).
 The South African government may enter into agreements with the
governments of other countries to prevent double taxation of the
same property in a deceased’s estate (s 26).
 Any person who fails to comply with any reasonable requirement of
the Master or Commissioner or hinders the Commissioner or
Master in carrying out any provision of the Act, shall be guilty of an
offence and liable on conviction to a fine or to imprisonment for a
period not exceeding two years (s 28).

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