This is the first of a three part series on tax starting with Estate Duty, which will be followed by Trust taxes and lastly, Company tax.

Please note that Fourstrings is by no means a tax specialist and we urge you to get professional financial advice – this article is merely to summarise the current calculations should you inherit R40 million in South Africa today (Congrats!)

Here is a breakdown of the taxes applicable to the estate and how they may impact your inheritance:

 1. estate duty

Estate duty is paid by the estate, not the heir directly, but it will affect the final amount you inherit.

   – First R3.5 million: Exempt from estate duty.

   – R3.5 million to R30 million: Subject to a 20% estate duty.

   – Above R30 million: Subject to a 25% estate duty.

calculation:

   – Dutiable value = R40 million – R3.5 million = R36.5 million

   – Estate duty on R30 million (at 20%) = R6 million

   – Estate duty on R6.5 million (at 25%) = R1.625 million

   – Total estate duty = R6 million + R1.625 million = R7.625 million

So, R7.625 million would be paid as estate duty.

 2. capital gains tax (cgt)

Capital Gains Tax (CGT) is also paid by the estate on the capital gain of the deceased’s assets. The CGT is levied on the difference between the cost of assets and their market value at the time of death.

      – Exemption: The first R300,000 of capital gains in the year of death is exempt.

CGT is not directly paid by you as the heir, but it reduces the total value of the estate before it is distributed.

Without knowing the specifics of the deceased’s capital gains, it’s challenging to provide a precise amount here.

 3. executor’s fees

   – The executor of the estate may charge up to 3.5% (plus VAT) of the gross value of the estate.

   – Executor’s fees on a R40 million estate = R40 million × 3.5% = R1.4 million (plus VAT at 15%, which is R210,000), making the total executor fee approximately R1.61 million.

total reduction to the estate:

   – Estate Duty: R7.625 million

   – Executor’s Fees: R1.61 million

   – (CGT depends on specific asset gains)

So, the estate would pay approximately R9.235 million in estate duty and executor fees, reducing your inheritance from R40 million to approximately R30.765 million (before accounting for any CGT liabilities).

As the heir, you do not directly pay inheritance taxes, but these reductions affect the final amount you receive.