Wills and Trusts

As a result of recent legislative changes, the tax structures some financial planners have set up solely to assist clients avoid or defer donations tax and estate duty might no longer be effective.


Section 7C of the Income Tax Act, introduced by the 2016 Taxation Laws Amendment Act is already making the estate planning advisory work of financial planners more challenging.


Effective 1 March 2017, Section 7C requires that in the absence of charging interest on loans to trusts, at a rate at least equal to the "official rate of interest", individuals will now be subject to donations tax.


Previously, financial planners could advise clients to transfer their assets to a trust by way of an interest free loan and the loan to the trust would then be written-off over their lifetimes at an amount of R100 000 per year which is the threshold below which donations are exempt from donations tax.


This arrangement up until 1 March 2017 avoided donations tax, in addition to serving as a shield against the estate duty and capital gains tax on the trust assets, upon the individual's death.


The Davis Tax Committee took a dim view on these arrangements to avoid or defer taxes. In its review and recommendations on estate duty, the committee suggested estate duty and other taxes on inheritances are an effective mechanism to redistribute wealth and create a fairer, more equal society – more so than levying additional taxes on the incomes of the wealthy.


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