Estate duty is a tax levied by the South African Receiver of Revenue on the total market value of a person's assets (cash and non-cash) at the date of their death. When you die, everything you own will be included in your estate for estate duty purposes. Also, any liabilities, master’s fees and executor’s fees, will be taken from your estate before estate duty is applied.
In terms of current legislation there are certain deductions and rates that apply to estates:
Estate duty is only applied on your estate assets if the total value of your assets is more than R3.5 million. The taxable amount is the value of your assets (such as home, car, life insurance, investments or cash) less any debts, liabilities and the allowable deductions. The first R3.5 million is exempt from estate duty tax so you’ll only pay tax on any amount over R3.5 million.
Your marital contract, such as community of property or out of community of property (with or without accrual), will have an impact on what portion of your estate is taxed. A bequest to your surviving spouse on your death will also rank as a deduction in your estate and reduce the value of your estate, which will reduce the estate duty you are have to pay.
The death of a person is a “deemed” capital gains tax event. Any assets not left to the surviving spouse and other specified entities, such as charities triggers capital gains tax. The first R300 000 of any capital gain incurred by the deceased in the year on such “disposed” assets is allowed as an exclusion. Any gain in excess of this amount is taxed. Currently for individuals CGT is at an inclusion rate of 33% of your marginal rate, so has a maximum effective rate of up to 13.3%. CGT in a deceased estate can be complicated so it is best to get specialist advice in this regard.
Just as you pay tax on income when you are alive, so the income earned in your year of death is also taxed. The executor of the deceased estate must account for any income tax owing by the deceased at the time of death.
To make sure your estate is distributed according to your wishes, you must put these documents in place to protect your loved ones if you die: