Tax and Deceased Estates

Benjamin Franklin once said, “Nothing in this world is certain but death and taxes”. A sentiment that still holds true today.
There are several types of taxes associated with deceased estates. Not all of these taxes are applicable to each and every estate. The circumstances of the estate will dictate which taxes are applicable to that estate. These taxes can include the following:

1. Income Tax: As a general rule, the Income Tax Act provides that when a person dies, he is deemed to have disposed of all his assets to his deceased estate for an amount received equal to the market value of those assets and the deceased estate is deemed to have acquired the assets for this market value. There are, however, exceptions to this rule: for example, the assets accruing to the surviving spouse upon the death of the first dying spouse are not deemed to have been disposed of on the death of the deceased.
   Persons 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 were certain acquisitions/disposals of assets by the Executor after the date of death, will be subject to the second income tax registration (new income tax entity).
2. Value Added Tax (VAT): If the deceased was registered as a VAT vendor, the Executor may have to register the estate for VAT purposes and there may be VAT implications.
3. Estate Duty: All income received or accrued before the deceased’s death is taxable in the hands of the deceased up until the date of death, and will be administered by the Executor acting as the deceased’s representative taxpayer. After the date of death of a person, a new taxable entity comes into existence – the “estate”. Estate duty is currently charged on the dutiable amount of the estate at a flat rate of 20%. The dutiable amount is calculated by deducting a R3.5 million primary abatement from the ‘nett value of the estate’. It is important to note that the value of all property included in the deceased’s estate, which accrues to the surviving spouse, either in terms of the deceased’s will or by intestate succession, can be deducted to the extent that it has been included in property.
4. Capital Gains Tax (CGT): Any Capital Gains Tax which would be due is payable before the inheritance is transferred to the beneficiaries. The acquisition of an asset does not give rise to a capital gain at the time of inheritance, and any capital gain or loss is only calculated when the asset is ultimately sold or disposed of.

As you will note from the above, deceased estate taxes are quite complicated. It is advisable to have a professional tend to the deceased estate’s taxes in order to ensure that all SARS’s requirements are met. One further needs to be aware what the capital gains tax and the estate duty liabilities are likely to be in order to ensure that the estate has adequate liquidity to avoid the forced sale of assets.