Estate duty on loans not recovered

A Fin24 user wants to know if there would still be estate duty on a loan which could not be recovered. She writes:

As I understand, estate duty is payable on amounts exceeding R3 500 000.

If there was a loan in the estate that could not be recovered, is that still considered an asset and is that still included in the taxable amount?

Can the executor charge a fee on the loan? The implication would be that the heirs have to pay tax on monies they never received?

Pieter Faber, technical executive of tax law at SA Institute of Tax Professionals (Sait), responds:

Estate duty is levied on the "dutiable amount" of the "estate".

The "dutiable amount" is determined by taking the total value of all the "property" (per section 3 read with section 5 of the Estate Duty Act 45 of
1955), which then constitutes the estate.

Then certain amounts are deducted therefrom to calculate the net value of the estate.

Excluded from the "property" of the estate in section 3(2)(e) is any debt not recoverable.

Therefore, estate duty will not be levied on irrecoverable debts as it is excluded from the "property" of the estate.

The executors remuneration, if not determined in the will, is determined in section 51 of the Administration of Estates Act 66 of 1965, read with regulation 8(1), which determines the prescribed tariff chargeable by the executor.

The prescribed tariff is 3.5% of the gross assets of the estate and 6% on income accrued and collected after the death of the deceased.

It is our view that gross assets would not include an irrecoverable debt which, though it is an asset of the estate at date of death, would have an appraised value of Rnil once it is determined that it is irrecoverable.

- Fin24

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