PROPERTY NEWS - The 2018/2019 Budget Speech alluded to an increase in estate duty tax of 25%, from 1 March, for estates with a net value of more than R30-million.

Johan Strydom, head of growth at FNB Fiduciary, says that there is still a lot of confusion around the concept of estate duty. 

"Many consumers struggle to understand what it means, how it impacts them, their heirs and next of kin. Understanding and calculating estate duty accurately is quite a complex process and sometimes can be quite confusing."

He highlights the following important principles:

What is Estate duty?
Estate duty is a type of tax which is payable by the estates of deceased people who have a net estate valued at more than R3,5-million. This is payable within one year after the date of death and the executor of the estate is liable for the payment of the assessed amount to the South African Revenue Service.

Gross value of an estate
The gross value of a deceased person's estate includes all assets owned by the deceased locally and abroad; and the proceeds of all life assurance policies payable on the life of the deceased.

Deductions and rebates
Certain deductions and rebates are allowed before one gets to a dutiable estate value. These include claims against the estate, administration expenses and liabilities of the deceased. For example, outstanding credit facilities, funeral costs, the executor's fees and the deceased's final income tax liability are deductible from the gross estate value. Any bequest to a surviving spouse is also allowed as a deduction. In addition, all estates also get a rebate of R3,5-million rand.

Estate duty is then levied on the dutiable estate at a rate of 20% up to R30-million and 25% on the amount above R30-million.

Unique circumstances
Most individuals and families have unique circumstances; the following are some practical scenarios that will help you plan for the future:

• Some consumers have the view that estate duty is not something to be concerned about, thinking that estate duty will not affect them or their spouses, since there is no estate duty payable at the death of the first dying spouse when leaving one's entire estate to a surviving spouse. However, there is no escaping and with the transfer of assets from the surviving spouse to the next generation, that is where estate duty will then be unavoidable and payable on the estate of both spouses.
• Estates with high value assets like business interests and farms will logically mean higher estate duty. Consider the impact of this expense on the liquidity requirements in your estate. Many estates are solvent but do not have enough cash available for the executor to settle estate-related expenses like estate duty.
• Donations tax is levied at 20% on donations made above R100 000 per person per year. Many people think that by donating assets to their children or beneficiaries they can circumvent estate duty. The donations tax rate has also been increased to 25% for donations above R30-million.

"An annual review of one's estate plan, will and liquidity requirements is required to ensure the effective and smooth transfer of assets from one generation to the next," concludes Strydom.

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