Your guide to paying inheritance tax in South Africa

06.02.18
7 minute read
Tagged:

Understanding tax laws can be difficult for anyone. But it can be downright overwhelming for expats who split their lives between two different countries. If you’re living in South Africa as an expat, or if you have family there, you may want to understand the tax laws. Should the occasion arise where you’re dealing with an inheritance in South Africa, there are certain rules and regulations you should understand.

This article is a guide about how to navigate inheritance tax laws, whether you’re a foreigner who has moved to South Africa or a South African expatriate living abroad.

What is inheritance tax in South Africa?

Inheritance tax is a tax placed on a person who inherits assets through a person who has died. In South Africa, inheritance tax is only applied to property as estate duty, or money or property that’s left to someone by the deceased as a donation or gift. Assets in an estate can include things like immovable property (a house), movable property (a car, furniture, or heirlooms), cash, or shares in a company. An estate is comprised of all remaining assets after all of the estate’s debts are paid off.

(Source 22 Dec 2017)

Who has to pay inheritance tax in South Africa?

You don't have to pay tax on what you inherit as it's not included in your gross income, however, the estate of a deceased is subject to a 20% tax called Estate duty. This means that tax is paid on the estate before it goes to the beneficiary or beneficiaries, and the beneficiaries don't have to pay tax anymore on what they receive. Normally the executor of the estate is responsible for paying the Estate duty. Any donations or gifts that you receive before someone passes away are treated differently, taxwise.

There are also monetary limits and exemptions to the rules. Read on to find out what applies to you.

(Source 22 Dec 2017)

Non-resident inheritance tax

Non-resident and resident foreigners who inherit an estate in South Africa pay Estate duty at the same rate. However, residents will pay estate duty on their combined worldwide assets, while non-residents will only be taxed on their South African property. Non-residents are exempt from paying donations tax. You may also be subject to inheritance laws in your home country, so you should check with a local attorney or government bureau.

(Source 1, 22 Dec 2017)

Ownership of the property in South Africa

The law of succession allows individuals in South Africa to decide what happens to their assets after they die, based on their will. However, if no will is in place, the South African Intestate Succession Act of 1987 says that the estate of the deceased will be divided between surviving relatives. Here’s what happens:

Survived by... Entitled to...
One spouse or only one descendant 100% of the estate
No spouses or descendants, but parents Equally divided between both parents
One spouse plus other descendants Spouse receives a ‘child’s share’ of the estate (value of estate divided by number of children of deceased, plus one); rest of the estate is equally split between descendants
No immediate relatives Estate is divided between the nearest blood relatives
No one, and no one claims property within 30 years Estate is reclaimed by the South African government

(Source 1, Source 2 22 Dec 2017)

How is inheritance tax calculated?

Inheritance tax in the form of estate tax is calculated at 20% of the net value of the estate, of anything in excess of R3.5 million (South African rand, or ‘R’ - use an online currency converter to understand conversions into your home currency).

Here is a case study of how inheritance tax would be calculated:

Property value Amount in excess of R3.5 million threshold 2017 tax rate in South Africa Amount of tax due(2 million x 20%)
R5.5 million R2 million 20% R400,000

(Source 22 Dec 2017)

How can I reduce the amount of inheritance tax I pay?

The 20% Estate duty only has to be paid when the estate exceeds 3.5 million rand. When the estate is less than 3.5 million rand, no Estate duty has to be paid. But when the estate has a net value of, for instance, 6 million rand, you have to pay 20% estate duty on the amount of 2.5 million rand (6 million – 3.5 million).

The beneficiary of the estate doesn't have to pay Capital Gains Tax (CGT) on the inheritance, as this has to be paid before the distribution of the estate.

(Source 22 Dec 2017)

What constitutes a “gift tax” in South Africa?

Gift tax in South Africa is a tax levied on funds or assets given away by a living person. South Africa refers to gift taxes as donation taxes. Donations can take the form of money or other assets like property. Donations tax is paid at a flat rate on the value of the property donated. Luckily for non-residents, they’re not liable for donations tax. The donor might be liable for the tax, but if the donor fails to pay the tax within the set period, the donor and donee are jointly liable for the tax. Public companies are also exempt from the donations tax.

(Source 22 Dec 2017)

Tax-free gift allowance

Donations made by individuals up to the amount of R100,000 are tax-free. Donations in excess of this number will be subject to a 20% tax. Donations made to spouses and charities of any size are exempt from tax.

(Source 22 Dec 2017)

What are the inheritance tax exemptions in South Africa?

The first 3.5 million rand is tax exempt, everything above that amount is subject to Estate duty.

Are there any other additional taxes on inheritance in South Africa?

No other taxes on inheritance exist in South Africa.

When do I have to pay inheritance tax?

Estate duty is due within 1 year of the date of death. However, if the assessment is issued within the 1st year, the Estate duty is due within 30 days of the date of assessment. A 6% interest is charged on late payments.

Donation tax needs to be paid by the end of the month following the month that the donation took place. (Source 1, Source 2, 22 Dec 2017)

How do I pay my inheritance taxes in South Africa? Can I pay online?

It’s usually the responsibility of the executor of the will to ensure that any applicable estate duty is paid on the inherited property. Even if the tax isn't due, the authorities at the South African Revenue Service (SARS) should be notified of the death and the transfer of property. You need to email or post the following documents to your assigned SARS office (these are assigned by region. Check this list to find your local office):

  • Death certificate
  • ID of the deceased
  • Letters of Executorship
  • Letter of Authority (if the estate is worth less than ZAR 250,000)
  • Certified copy of the executor’s ID
  • Power of Attorney (if applicable)
  • Executor contact details
  • Will of the deceased (if applicable)
  • Inventory of deceased’s assets
  • Liquidation and distribution accounts (if applicable)

(Source 22 Dec 2017)

When it comes time to submitting payment for your estate or donation tax, SARS offers a free online eFiling system which can take ‘credit push’ payments online from several local South African banks. Additionally, SARS offers the options to pay: at a SARS customs branch, through internet banking, or in person at several local banks. If you choose one of the latter three options you'll likely need to have the following handy:

  • Taxpayer reference number
  • Duty type
  • Tax period
  • PRN number

For any South African expats or residents living abroad who have inherited an estate in South Africa, ensuring that your estate or donation tax is paid from overseas can be complicated, especially if you don’t have access to local currency and banks. While you can elect to make your payment via internet banking, banks might charge you a 4-5% fee for a foreign transaction, and you run the risk of having a marked-up exchange rate. This is where TransferWise can help.

TransferWise has helped people all over the world save money by offering the mid-market exchange rate (the real market rate you see on Google or XE). If SARS accepts payments from a third party, you can use TransferWise to make your payment directly. If not, TransferWise can still help you by offering you a low-cost option to make a transfer into a local South African bank account held by you or one of your close friends or family. This will make the process of paying your taxes much easier.

If this is more than a one-time situation, you should consider opening up one of TransferWise’s new borderless multi-currency accounts, which lets you hold and manage money in dozens different currencies, including the South African Rand.

(Source 22 Dec 2017)

Taxes are a tough topic, especially when you’re dealing with tax laws in more than one country. But it’s important to understand your responsibilities and options. You have at least one option that can simplify all of the payments and the paperwork; TransferWise can help make the tax process easier by assisting with managing your overseas payments.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content is the publication is accurate, complete or up to date.

TransferWise is the smart, new way to send money abroad.

Find out more