Inheritance can be a complex topic, especially when it comes to understanding the legal and tax implications. This article outlines the key terms and tax considerations relevant to South African taxpayers when dealing with a deceased estate.
Key Terms of an Inheritance
- Deceased Person: The individual (taxpayer) who has passed away.
- Estate: All assets owned by the deceased person on the date of death are placed into an estate.
- Deceased Estate: The formal term for the estate of the late taxpayer, which includes all assets, liabilities, and administrative processes.
- Beneficiaries: Individuals or organisations who are legally entitled to receive assets from the deceased estate.
Assets in a deceased estate may include:
- Immovable property (e.g. a house)
- Movable property (e.g. vehicles, furniture)
- Financial assets (e.g. cash, investments)
Once the executor has completed the administration of the estate—including settling debts and obligations—the remaining assets are distributed to the beneficiaries.
Do You Pay Tax on Inherited Assets?
No. In South Africa, assets or money received through inheritance are classified as a capital receipt, which means they are:
- Not included in the recipient’s gross income
- Not taxable under normal income tax rules
- Not subject to Capital Gains Tax (CGT) for the recipient
However, inherited amounts must still be declared in your tax return. While they are disclosed, they do not affect your taxable income or increase your tax liability.
Estate Duty vs. Inheritance Tax
There is often confusion between estate duty and inheritance tax. South Africa does not impose a tax on the person receiving the inheritance. Instead, estate duty is levied on the total value of the deceased estate before distribution.
According to the South African Revenue Service (SARS), the estate duty is calculated as follows:
- 20% on the dutiable value of the estate up to R30 million
- 25% on the portion of the dutiable value exceeding R30 million
This duty is paid by the estate itself, not by the beneficiaries.
Are Donations Treated the Same as Inheritances?
No. Donations are treated differently for tax purposes and are subject to donations tax, which is governed by separate rules.
Key points on donations tax:
- 20% on the cumulative value of donations up to R30 million (since 1 March 2018)
- 25% on cumulative donations exceeding R30 million
- The first R100 000 donated annually by a natural person is exempt
- For entities (non-natural persons), casual gifts up to R10 000 per year are exempt
- Donations between spouses, South African group companies, and certain public benefit organisations are fully exempt
These thresholds and rates are subject to change during the annual budget speech, so it’s important to stay updated.
If you have any questions or need personalised guidance on inheritance, estate duty, or donations tax, please contact us at BC Accounting. We’re here to help you navigate these matters with clarity and confidence.