When it comes to estate planning, one of the most important considerations is understanding estate duty. In South Africa, estate duty is a tax that can significantly impact the value of an inheritance. While often overlooked, proper planning around estate duty can make all the difference in protecting your legacy and reducing the financial burden on your loved ones.
In this blog, we’ll explore the fundamentals of estate duty in South Africa—what it is, how it works, and how you can effectively manage it through sound estate planning. Whether you’re drafting your first will or reviewing your existing estate plan, understanding estate duty is essential for ensuring your wishes are honoured and your heirs are taken care of.
What is Estate Duty?
Estate duty is a tax levied on the deceased person’s estate before the assets are distributed to the beneficiaries. It is calculated on the net value of the estate, which includes all property, assets, investments, life insurance policies, and certain deemed assets, minus any allowable deductions and liabilities.
The purpose of estate duty is to generate revenue for the state, but it also acts as a form of wealth redistribution. The key takeaway here is that estate duty is not paid by the heirs—it’s paid from the estate itself, which means it reduces the overall value passed on to beneficiaries.
Estate Duty in South Africa: How it Works
In South Africa, estate duty is governed by the Estate Duty Act No. 45 of 1955 and administered by the South African Revenue Service (SARS). The estate duty rate is structured as follows:
- 0% on the first R3.5 million of the dutiable estate (this is the abatement or exemption threshold).
- 20% on the value of the estate above R3.5 million.
- 25% on any value above R30 million, effective since 1 March 2018.
Let’s say a deceased estate is valued at R10 million. The first R3.5 million is exempt, and the remaining R6.5 million is taxed at 20%. That would result in an estate duty liability of R1.3 million.
What is Included in the Estate?
When calculating estate duty, SARS includes the following:
- All property owned by the deceased at the time of death (fixed property, vehicles, investments, cash, etc.).
- The proceeds of domestic life insurance policies where the estate is the beneficiary.
- Deemed property such as donations made within two years before death if made in anticipation of death.
- The accrual or antenuptial claim if the deceased was married out of community of property without accrual.
- The proceeds of domestic policies that are payable directly to beneficiaries – the so-called “deemed assets”.
It’s important to note that even offshore assets may be included in the estate, depending on the deceased’s residency status and the applicable tax treaties.
What Can Be Deducted?
SARS allows several deductions that help reduce the dutiable estate:
- Funeral expenses and costs of administering the estate.
- Debts owed by the deceased at the time of death.
- Bequests to public benefit organisations (PBOs) or charities.
- The value of any property accruing to a surviving spouse (spouse exemption).
- Costs of transferring assets to beneficiaries.
These deductions can significantly reduce the estate duty liability if structured correctly, especially through interspousal bequests and charitable donations.
The Role of Spouse and Portability
A crucial aspect of estate duty in South Africa is the rollover provision for spouses. If a deceased spouse bequeaths their entire estate to the surviving spouse, no estate duty is payable due to the spouse exemption.
Even better, the unused portion of the R3.5 million abatement can be transferred to the surviving spouse’s estate. This means that when the second spouse dies, the combined estate may enjoy an exemption of up to R7 million. This provision, often referred to as “portability”, is a key strategy in advanced estate planning.
Key Considerations and Planning Tips
Navigating estate duty in South Africa requires a proactive and strategic approach. While the tax itself may seem straightforward on the surface, the real challenge lies in understanding how to structure your affairs in a way that minimises the tax burden and ensures that your beneficiaries receive the maximum value from your estate. Below are some essential considerations and tips that can help you plan effectively:
1. Start Estate Planning Early
The most effective way to reduce estate duty liabilities is to begin planning well in advance. Estate planning is not only for the wealthy or elderly—any individual with assets, dependents, or financial obligations should have a basic estate plan in place. Starting early allows you to gradually reduce the value of your estate through mechanisms like donations and trust structures, rather than rushing decisions later in life when fewer options are available.
Early planning also ensures that your will remains up to date with life events such as marriage, divorce, the birth of children, or changes in financial status.
2. Use Trusts Strategically
Trusts, particularly inter vivos (living) trusts, are powerful tools for estate planning. By transferring assets into a trust during your lifetime, those assets may be excluded from your personal estate when calculating estate duty. However, care must be taken, as SARS will scrutinise trusts where the founder retains too much control or benefits from the assets.
A well-structured trust can:
- Help protect assets from creditors
- Reduce estate duty if structured correctly
- Provide continuity and efficient management of family wealth
Professional advice is essential to ensure compliance with tax laws and avoid unintended consequences, such as income and capital gains tax burdens within the trust itself.
3. Review Life Insurance Policies and Beneficiaries
Life insurance can be both an estate planning tool and a trap for the unwary. If the proceeds of a life insurance policy are payable directly to a beneficiary (such as a spouse or child), those proceeds may fall outside the estate and thus not be subject to estate duty. However, if the estate is listed as the beneficiary, the policy proceeds will be included in the dutiable estate and taxed accordingly.
A common and effective strategy is to nominate a trust or individual as the beneficiary to sidestep estate duty implications, provided this aligns with your overall estate planning goals.
4. Make Use of the Annual Donations Tax Exemption
South African tax law allows individuals to donate up to R100,000 per year tax-free. This is a useful tool for gradually reducing the size of your estate over time without incurring donations tax (which is otherwise levied at 20% to 25%).
For example, a couple can collectively donate up to R200,000 annually to their children or a family trust without attracting tax. Over a decade, this adds up to R2 million of estate value legally removed from the estate, reducing the estate duty liability accordingly.
Keep in mind, though, that donations made within two years of death may be pulled back into the estate if SARS suspects they were made in anticipation of death, so long-term planning is key.
5. Structure Bequests Thoughtfully
Bequests to a spouse are fully exempt from estate duty, which makes interspousal transfers an effective way to defer estate duty until the death of the surviving spouse. Similarly, bequests to public benefit organisations (PBOs) and registered charities are also estate duty exempt and can be a meaningful way to leave a legacy while reducing the estate’s tax burden.
In addition, consider the liquidity of your estate. If most of your wealth is tied up in fixed property, your heirs may struggle to cover estate duty, executor fees, or other liabilities. Ensuring your estate has enough liquid assets (like savings or policy payouts) to cover taxes and expenses can prevent the forced sale of assets.
6. Keep Your Will and Estate Plan Updated
Your will is the cornerstone of your estate plan. An outdated or ambiguous will can lead to delays, disputes, and unintended estate duty consequences. It’s important to review your will regularly—ideally every few years or after major life events—to ensure that it aligns with current legislation, your wishes, and your estate’s asset structure.
Also ensure your executor understands your estate structure and has access to important documents, accounts, and contacts, which can significantly smooth the administration process.
7. Work with Estate Planning Professionals
Estate planning and estate duty minimisation are highly specialised areas. Even well-intentioned strategies can backfire if not properly implemented in accordance with SARS regulations and the Estate Duty Act. That’s why it’s critical to work with estate planners, fiduciary specialists, or trusted firms like Crest Trust who can guide you through the legal, financial, and administrative complexities.
Professionals can help you:
- Draft and update your will
- Establish and administer trusts
- Structure insurance and investment portfolios
- Plan for liquidity
- Calculate estimated estate duty liabilities and plan accordingly
Conclusion
Estate duty can significantly affect how much of your wealth is passed on to the next generation. However, with careful planning and the right guidance, it’s possible to reduce the impact of this tax and preserve more of your legacy. At Crest Trust, we offer professional estate planning services that help South Africans protect their assets and ensure their loved ones are provided for.
If you’re unsure about your current estate plan or want to learn more about how estate duty might affect your estate, we’re here to help.
FAQs
What is the estate duty in South Africa?
Estate duty is a tax imposed on the net value of a deceased person’s estate. The first R3.5 million is exempt, 20% is levied on the portion above that up to R30 million, and 25% is charged on the portion exceeding R30 million.
What is the meaning of estate duty in simple words?
Estate duty is a tax paid from your estate after you die, before your assets are handed over to your heirs.
What is excluded from estate duty?
Several items can be excluded, such as:
- Bequests to a surviving spouse
- Bequests to approved charities or public benefit organisations
- Funeral and administration expenses
- Legitimate debts owed by the deceased
How to reduce estate duty in South Africa?
You can reduce estate duty by:
- Leaving assets to your spouse
- Making use of annual donations
- Establishing trusts
- Structuring life insurance policies carefully
- Donating to charities