Estate Duty is a type of tax paid on the ‘dutiable estate’ of a deceased individual. It is charged at a rate of 20% on the first R30 million of the dutiable estate, and 25% on anything above R30 million. The dutiable estate consists of all the deceased individual’s property (both assets and liabilities), after the allowable deductions have been made.
Estate Duty is taxed on the international property and deemed property of a natural person who is ordinarily resident in South Africa and on South African property of non-residents. Various deductions under section 4 of the Estate Duty Act, 1955 are allowed to determine the net value of the estate. A reduction of R3.5 million is allowed against the net value of the estate to determine the dutiable value of the estate. The Estate Duty is charged on the dutiable value of an estate at a rate of 20% on the first R30 million and at a rate of 25% on the dutiable value of the estate above R30 million.
In terms of calculating estate duty, the first R3.5 million of the value of the estate is not subject to tax. If the deceased is the first-dying spouse, he can roll-over this abatement to the surviving spouse who will then have an R7 million estate duty abatement on her death. In addition, where the deceased bequeath assets to his surviving spouse (including proceeds from a domestic life policy) no estate duty will be charged on the applicable assets.
Add up all of the property and deemed property of the deceased individual to give you a gross value of the estate of the deceased.
Deduct the following from the property and deemed property:
Funeral costs and deathbed expenses; outstanding debts of the deceased; usufruct or fideicommissum; general administration expenses; valuation fees; certain foreign property; bequests to public benefit organisations; improvements to property; maintenance claims; items/amounts that are inherited by a surviving spouse. The balance that remains is the net value of the estate of the deceased.
Subtract The Abatement
An abatement of R3.5 million can be deducted from the net value of the estate in terms of Section 4A of the Estate Duty Act. (It is an abatement that is afforded all deceased persons to reduce the value of their estates after death.)
The balance that remains is the dutiable estate for estate duty purposes. (In other words, the balance here is what you will pay estate duty on.)
Estate duty is calculated at 20% of the dutiable estate. For example, if Patrick’s dutiable estate is R1million, the calculation is 20% times R1million. That is R200 000.