Estate Duty and Deceased Estate Tax in South Africa: What You Need to Know

When a person passes away, their estate may need to address several tax obligations.

As a result, families and executors often encounter terms such as estate duty, capital gains tax, deceased estate tax and SARS compliance.

However, these terms do not all refer to the same tax.

Therefore, executors need to understand that estate duty forms only one part of the broader tax process that may follow a person’s death.

Depending on the circumstances, the executor may also need to manage the deceased person’s outstanding tax affairs, capital gains tax considerations and the tax obligations of the deceased estate during administration.

What Is Estate Duty in South Africa?

Estate duty is a tax that may apply to the dutiable value of a deceased person’s estate.

SARS determines estate duty by considering the relevant value of the estate, including applicable property and deemed property, before applying the allowable deductions and relevant abatement.

In other words, an executor cannot simply apply an estate duty percentage to the total value of all assets.

Instead, they need to consider the estate’s full tax position.

Not every deceased estate will pay estate duty.

However, every executor should determine whether estate duty applies and ensure that they meet the relevant SARS requirements.

What Is the Estate Duty Threshold?

SARS currently provides an estate duty abatement of R3.5 million against the net value of the estate when calculating the dutiable amount.

SARS currently levies estate duty at:

• 20% on the first R30 million of the dutiable value
• 25% on the portion of the dutiable value above R30 million

However, the calculation can involve more than simply comparing the total value of the estate with the R3.5 million abatement.

The executor must consider the gross value of the estate, deemed property, allowable deductions and other relevant factors before determining the estate’s dutiable value.

For this reason, complex or high-value estates often require specialist tax expertise.

Does Every Deceased Estate Have to Be Reported to SARS?

The executor or authorised representative must deal with the deceased person’s tax affairs and complete the relevant SARS administration process.

Importantly, SARS requires the appropriate parties to report the death and update the taxpayer’s status.

Furthermore, even when estate duty is not payable, the executor or authorised representative may still need to meet the relevant SARS reporting and tax administration requirements.

Therefore, families should not assume that an estate has no SARS obligations simply because its value falls below the estate duty abatement.

The executor may still need to deal with outstanding returns, assessments or other tax matters before SARS can finalise the relevant tax compliance process.

What Tax Happens When Someone Dies?

A deceased estate can involve several different tax considerations.

For example, the executor may need to consider income tax, capital gains tax, estate duty and tax obligations that arise during the administration of the deceased estate.

Income Tax Up to the Date of Death

First, the executor or authorised representative needs to address the deceased person’s tax affairs up to the date of death.

This may include submitting outstanding income tax returns and ensuring that the deceased person’s tax records are up to date.

In addition, the executor may need to respond to SARS queries or resolve outstanding assessments.

Tax Obligations of the Deceased Estate After Death

After the person’s death, the executor administers the deceased estate while the estate administration process continues.

The estate may receive income during this period. Consequently, the executor may need to address tax obligations relating to income earned or received during the administration period.

SARS treats the deceased person’s tax affairs and the deceased estate’s tax affairs as separate parts of the overall administration process.

Therefore, the executor needs to identify the correct tax periods and meet the relevant requirements for each.

Capital Gains Tax

Capital gains tax may also become relevant when a person dies.

Depending on the assets involved and the applicable tax rules, the executor may need to calculate and report capital gains or losses arising from the relevant tax events.

For example, the estate may include:

• Property
• Investments
• Shares
• Business interests
• Other capital assets

Accordingly, the executor should identify all relevant capital assets and consider the tax implications as part of the deceased person’s final tax affairs and the broader estate administration process.

Estate Duty

Where estate duty applies, the executor must calculate the estate duty position and complete the relevant estate duty requirements.

This may include preparing and submitting the REV267 Estate Duty Return and supporting documentation.

Thereafter, the executor must address any queries, assessments or additional requirements that SARS may raise.

Who Is Responsible for Paying Estate Duty?

The executor generally takes responsibility for managing the estate duty process and ensuring that the estate meets its applicable tax obligations.

However, the way SARS applies estate duty can depend on the type of property involved and how the deceased structured certain assets.

For example, some policies may pay directly to a beneficiary instead of into the deceased estate.

As a result, the relevant estate duty consequences may differ depending on the circumstances.

Therefore, executors should consider the full structure of the estate instead of relying only on the value of assets that physically fall into the estate account.

When Is Estate Duty Due?

SARS sets specific deadlines for estate duty.

The executor should therefore identify estate duty obligations as early as possible and manage the required documentation within the applicable timeframe.

Furthermore, late payments can result in interest or other financial consequences.

Consequently, early tax planning during the estate administration process can help the executor identify potential issues before they cause unnecessary delays.

What Is a SARS Deceased Estate Compliance Letter?

A SARS Deceased Estate Compliance letter, often referred to as a DEC letter, forms part of the final tax compliance process for a deceased estate.

The letter confirms that the deceased person’s and deceased estate’s relevant tax obligations have been addressed in accordance with SARS requirements.

Before SARS can finalise this process, the executor or authorised representative may need to submit outstanding returns, resolve assessments and deal with outstanding tax liabilities.

In addition, the executor must address estate duty and other applicable taxes before completing the relevant compliance requirements.

Why Is Deceased Estate Tax So Complex?

Deceased estate tax often involves several interconnected obligations.

For example, the executor may need to deal with:

• The deceased person’s outstanding income tax affairs
• Income up to the date of death
• Capital gains tax considerations
• Tax on income earned by the estate
• Estate duty
• REV267 submissions
• SARS queries or assessments
• Final tax compliance requirements

As a result, an executor may need to manage several tax periods, different tax calculations and multiple SARS processes at the same time.

Furthermore, the complexity can increase when the estate includes property, investments, business interests or significant assets.

For this reason, specialist knowledge can play an important role in helping executors manage the tax requirements accurately and efficiently.

Specialist Deceased Estate Tax Services

With these complexities in mind, Optima Executors® provides specialist taxation services specifically for deceased estates.

Our team assists with:

• Reporting a death to SARS
• Obtaining the relevant tax history
• Preparing outstanding tax returns
• Addressing capital gains tax considerations
• Registering the deceased estate for tax purposes where required
• Preparing relevant estate tax returns
• Calculating estate duty
• Preparing and submitting REV267 documentation
• Managing SARS queries and clearances

In this way, we help families and executors manage the technical tax aspects of deceased estate administration with professional support.

Need Help With Estate Duty or SARS Requirements?

Estate duty and deceased estate taxation can become complex, especially when an estate includes property, investments, business interests or multiple beneficiaries.

Therefore, executors should identify the estate’s tax obligations early and ensure that they address the relevant requirements throughout the administration process.

Rather than navigating complex SARS and tax requirements alone, Optima Executors® can provide specialist assistance with deceased estate tax, estate duty, capital gains tax and SARS compliance.

Contact Optima Executors® for professional support with the tax and estate administration requirements involved in winding up a deceased estate.