The death of a loved one is an extremely emotional time for all concerned, but more than that, there are a whole lot of administrative issues that need to be dealt with at the same time.
With this in mind we have tried to provide some practical advice on how to deal with the financial and taxation processes that need attention during this difficult time. The information in this post is a summary of the information on SARS website, especially with regards to How to register a deceased estate and Tax on Inheritance / Donations / Deceased estates.
When a person dies, that person is called a ‘deceased person’ and the assets of the deceased person are placed in what is termed an ‘estate’, or in long form, an ‘estate of a deceased person’ (commonly known as a ‘deceased estate’).
The assets in a deceased estate can include immovable property (eg: houses and land), movable property (eg: cars, furniture, etc), cash in the bank, and stocks, among other things.
The person who administers a deceased estate is called an ‘Executor’. The main job of the executor is to finalize all the administrative processes related to the deceased person. This includes paying off all the debts, verifying all the assets and finalizing any and all duties related to the deceased estate.
Once the Executor has finalised all the administrative processes of the deceased estate, the remaining assets and life assurance will be distributed to the beneficiaries.
A beneficiary can be either a heir and/or a legatee. A legatee is a person who receives a specific asset from the deceased estate. An heir is a person who receives the balance of the estate (that is, after all disposals to a legatee are finalised).
Do I need to pay tax on assets or money I inherited?
This is probably the most common question about deceased estates. The answer is, no. Any and all taxes due are calculated and paid by the deceased estate before they are distributed to you, the beneficiary. An asset that you inherit is a ‘capital receipt’ and is therefore not included in your, the taxpayer’s, gross income. This means that, in South Africa, there is no tax payable by a person who receives an inheritance. Capital Gains Tax (CGT) is also not payable by the recipient of an inheritance, rather, if applicable, it is usually payable by the deceased estate.
How does Estate Duty work in relation to an inheritance?
Estate duty is a form of tax that is levied on the deceased estate. The purpose of estate duty is to tax the transfer of wealth (assets) from the deceased estate to the beneficiaries. The rate of estate duty is 20% on the first R30 million of the taxable amount and then 25% on amount over and above R30 million. This tax is levied directly on the deceased estate.
Changes in legislation for Deceased Estates
SARS introduced system changes with regards to deceased estates in December of 2016. The changes were an attempt to optimise the processing of deceased estates and lighten the administrative burden on executors of deceased estates. The main change is that all income, including Capital Gains Tax, will be taxed in the hands of the deceased estate instead of in the hands of the beneficiaries or a Special Trust Type A.
The changes are mainly for:
Deceased Estates – Sec 25(1) of the Income Tax Act no. 58 of 1962:
A new dispensation for income received by or accrued to the executor of a deceased estate, as well as certain acquisitions or disposals of assets by the executor of the deceased estate will be introduced and come into effect in respect of persons who die on or after 1 March 2016. This will be done by creating a new income tax record for the deceased estate which will do away with anomalies which currently exist pertaining to the income received or accrued and the acquisition/disposal of assets after date of death. The deceased estate will, therefore, be subject to a second income tax registration (new income tax entity).
Currently, for deaths prior to 1 March 2016, income other than Capital Gains Tax (CGT) accrued after date of death, is taxed in the hands of the beneficiaries. CGT however, is taxed by way of a Special Trust Type A. With the implementation of the legislative changes, all income including CGT will be taxed in the hands of the deceased estate. The deceased estates for deaths on or after 1 March 2016 will no longer be required to register for Special Trusts Type A.
Second Income Tax Registration:
Only deceased estates of taxpayers who passed away on or after 1 March 2016 and where the executor of the estate had received post date of death income, or there was certain acquisitions/disposals of assets by the executor after date of death will be subject to the second income tax registration.
The executor (registered representative) requesting the second income tax reference number must be the same as the executor on record at SARS in respect of the taxpayer’s income tax reference number to date of death. The application for the second income tax reference number can be processed via eFiling or at a SARS branch. If the executor was replaced after the taxpayer records were marked as a “Deceased Estate”, a letter of appointment must be provided in order to change the representative details.
The banking details for the “to date of death” and “post date of death” registrations must be the banking details of the deceased estate provided by the executor and must not be the banking details of the deceased taxpayer. Where the banking details used in the first registration differs from those in the second registration, the representative must provide and meet all FICA requirements to change the banking details of the deceased estate.
In the case of deceased estate:
A letter of authority/executorship signed and stamped by the Master of the High Court;
Valid original or a temporary identity document/passport/driving licence of the executor and a certified copy thereof. Where the executor is not in a possession of a certified copy, make a copy and any SARS official who is an Authorised Commissioner of Oaths must certify the relevant copy;
Original bank statement or ATM/Internet generated statement or ABSA eStamped statement not more than three months old that confirms the account holder’s legal name, bank name, account number, account type and branch code, where applicable, or where a new bank account was opened and a bank statement cannot be produced, an original letter from the bank not older than one month on the bank letterhead with the original bank stamp reflecting the date the bank account was opened and confirming executor’s or estate late bank account details; and
Copy of a proof of residential address of the executor.
It is important to note that the second registration will not be automatically registered when the taxpayer record is marked as a “Deceased Estate”. The executor of the estate has to formally apply for registration of the Second Income Tax Registration.
- Death certificate or death notice
- Identity document of deceased person
- Letters of Executorship (J238) (if applicable) and Letter of Authority (J170) )(in cases where the estate is less than R250 000)
- Certified copy of the executor’s identity document
- Special Power of attorney (if applicable)
- Proof of physical address and contact details of executor or agent
- Last ‘Will’ and ‘Testament’ of the deceased person
- An inventory of the deceased person’s assets
- The liquidation and distribution accounts (if available)
What legislation affects inheritances in South Africa?
South Africa’s inheritance laws apply to all persons that own property in South Africa.
The three main statutes governing inheritances in South Africa are:
- The Administration of Estates Act, which regulates the disposal of the deceased’s estate in South Africa;
- The Wills Act, which affects all testators with property in South Africa;
- The Intestate Succession Act, which governs the devolution of estates for all deceased persons who have property in the Republic and who die without a will.
In addition the South African government has agreements with some countries to avoid double taxation in relation to estate duty.
For more information about deceased estates and second income tax registration contact us to set-up a free initial consultation with one of our specialists.
You can also call the SARS Contact Centre on 0800 00 7277 or visit your nearest SARS branch.
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