This article deals with the financial outcome related to the estate of a deceased person. This is part 2 of a series of articles related to Estate Duty and discussed the valuation thereof.
When a natural person (taxpayer) dies, that person is called a ‘deceased person’ and all his or her assets on the date of death will be placed in an estate. This estate is called an estate of a deceased person (commonly known as a ‘deceased estate’). Assets in a deceased estate can amongst other things include immovable property (house), movable property (car, furniture, etc.), cash in the bank, etc. The person who administers a deceased estate is called an ‘Executor’. Once the Executor has finalised all the administration in the deceased estate, the remaining assets (after paying all the debts) will be distributed to the beneficiaries.
A beneficiary can consist of either heirs and/or legatees. A legatee is a person who receives a specific asset from the deceased estate. An heir is a person who receives the balance of the estate (that is after all disposals to a legatee are finalised).
What is estate duty?
Estate duty is the duty levied under the Estate Duty Act, 1955 (the ED Act) on the dutiable amount of an estate of a deceased person.
Estate Duty is calculated as follows:
The estate of any person shall consist of all the property and deemed property (situated in and outside South Africa) of the deceased person as of the date of death. However, for a deceased person who was not ordinarily resident in South Africa, any property situated outside South Africa will be excluded.
The net value of the estate is calculated by deducting from the gross value of all property and deemed property the amounts provided for in section 4. Once the net value is determined, an
amount of R3,5 million is deducted under section 4A to determine the dutiable amount of the estate. Estate duty is then calculated on the dutiable amount.
The value of the section 4A abatement (a reduction of the tax to be paid) has increased over time as follows:
Period Value (R)
Prior to 1 March 2005 R 1,5 million
1 March 2005 to 28 February 2007 R 2,5 million
1 March 2007 to date R 3,5 million
What is the impact on the section 4A abatement if the deceased had a predeceased spouse at the time of death?
An abatement of R3,5 million is available in respect of every estate, however, where a deceased person has a predeceased spouse, the deceased person is entitled to a rebate of R7 million
(R3,5 million × 2) less any amount used by the predeceased spouse’s estate. The maximum that the latter dying spouse can have is R7 million.
Person A died in January 2020 but had a predeceased spouse, B, who died in 2019 and used R3 million of the section 4A abatement. What is the value of the section 4A abatement in A’s
R3,5 million × 2 less any amount used by predeceased spouse = R7 million less R3 million = R4 million is available to A’s deceased estate.
If the section 4A abatement entitlement was less than R3,5 million at the time of the predeceased spouse’s death, how is the section 4A abatement calculated in the latter dying spouse’s estate?
The fact that the allowable section 4A abatement was worth less than R3,5 million (for example R2,5 million in 2006), does not affect the starting point of R7 million in the second dying spouse’s hands.
Example: Person A died in June 2020 but had a predeceased spouse, Person B who died in 2006 when the section 4A abatement was only R2,5 million. The full R2,5 million was used in B’s deceased estate. What is the value of the section 4A abatement in A’s deceased estate?
The section 4A abatement will be calculated as follows:
R3,5 million × 2 less any amount used by predeceased spouse = R7 million less R2,5 million = R4,5 million qualify as the section 4A abatement in Person A’s deceased estate.
The Estate Duty Act does not require the predeceased spouse to be ordinarily resident for the latter dying spouse to make use of any unused portion of the R3,5 million. The only requirement is that there must be a predeceased spouse. The fact that the predeceased spouse ended up having no estate does not disqualify the R3,5 million to be rolled over to the latter dying spouse’s estate.
The deceased person’s liability for tax and year of assessment comes to an end at the date of death and a new taxpayer, namely, the deceased estate comes into existence in respect of any income and liabilities that arise after the date of death. Although the deceased estate is treated as a natural person, it is not regarded as the same natural person as the deceased person.
Part 3 of this series of articles will specifically deal with taxation.