Estate duty unpacked

A Fin24 reader asks:

What did the 2012 budget say about estate duty? I have inherited great assets from my late mother and father, but I have often been told about estate duty. How does this work in SA?

David Nathan, senior partner at Grant Thornton, responds:

In the 2012 budget, nothing further was mentioned about the abolition of estate duty which was alluded to several years ago. Estate duty coupled with higher capital gains tax (CGT) is detrimental to many people who have managed to accumulate wealth in their lifetime.

Heather Robertson, chief financial planner at Blink Consulting, responds:

Estate duty (a tax on the total market value of a person's assets - both cash and non-cash - at the date of death) is calculated at a rate of 20%. So, when you pass away, your estate does not pay estate duty on the assets that your spouse will inherit (called a Section 4Q deduction).

In addition, you have a further R3.5m abatement that is exempt from estate duty (called a Section 4A abatement), which you can make use of to leave a duty-free inheritance to relatives or friends.

The situation is slightly different for couples who have a joint will where the surviving spouse inherits the entire estate. Only when the second spouse passes away will the estate be divided between surviving family, friends, charities, etc.

To ensure that a person leaving their entire estate to their spouse does not forfeit the R3.5m Section 4A abatement, the Estate Duty Act allows for a roll-over of any unused estate duty abatement to the second-dying spouse.

This allows the second-dying spouse to leave up to R7m to heirs free of estate duty. 

 - Fin24