Business & Economy

Thursday, 08 October 2009 15:40

Portable Estate Duty and Transferring Residences

{pp}The revised Bill providing for the amendment to Section 4A of the Estate Duty Act was mentioned to Parliament on the 1st of September 2009. As a result of representations previously made, it had some interesting additions.

The main object of the amendment is to allow for the estate of the surviving spouse to be able to deduct the allowance of R3.5 million, together with the amount not so utilised as a deduction in the estate of the first dying. The Bill extends this relief to the situation where the surviving spouse was married to more than one previously deceased spouse! In such a case, the Executor in the estate of the surviving spouse can choose which of the pre-deceased spouses utilised the least amount of the deduction, and deduct the balance in that estate. I am surprised at this generosity.

Likewise, insofar as a multiplicity of wives is concerned, which occurs with Customary Law, each wife is entitled to an equal deduction not to exceed R3.5 million, less an equal amount in respect of the pre-deceased husband’s deduction utilized. This approach confirms our view that in the long run, Estate Duty will fall away with CGT becoming the prime tax, which will add more and more to the coffers of the State, with less and less effort.

In the last budget, Estate Duty and Donations Tax recovered amounted to something like R780 million i.e. less than one tenth of a cent as against the total budget figure. In my mind, it is a question of when will Estate Duty go, as it is clearly a form of double taxation, with CGT being a “disposal” on death. Canada (and Australia interestingly) do not have Estate Duty, but in Canada the CGT rate is substantial at half of the top marginal rate of 42%, and the effect at the end of the day is more or less the same as it is in South Africa with Estate Duty at 20%.

Insofar as the right to transfer a residence out of Trusts or Companies is concerned for a window period of approximately 2 years ending on 31st December 2011, various articles have suggested that this right will be extended to Companies where the shares in that Company are also owned by a Trust. The legislation now proposed does not extend this provision to such circumstances. The entitlement to a CGT and Transfer Duty free of transfer of a residence, is limited to a Company where the natural person held all the shares, while alternatively to a Trust where the purchase of the residence was financed by that natural person and that natural person resided in such residence from not later than 21st February 2009.

SARS’ view is that the previous window period, which ended in September 2002, provided likewise and anyone now taking advantage of these provisions should not be better off. I think this approach somewhat narrow. The cobwebs of complicated Trust and Company structures should always be offered tax incentives to be dismantled, and now is an excellent opportunity not to be missed! Andrew Duncan Tax Specialist Director | Private Client Department | Walkers Inc.

Contact Information:
Walkers Attorneys
Telephone: +27 21 464 1400
Fax: +27 21 462 2256

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