If you are eligible for an inheritance or are making provisions to pass on your wealth after your death, this article may help in answering some of the questions you may have about inheritance and tax.
Section 1 will briefly look at some considerations from a tax perspective when planning to provide an inheritance and Section 2 focuses on tax when receiving an inheritance.
1. Providing a tax efficient inheritance
Once you pass away, all your money, property and belongings are referred to as the ‘estate’. Anyone who you would like to benefit from your ‘estate’ (your heirs) should be specifically listed in your ‘will’.
Whether these heirs are kin or an organisation like a charity, you will usually want to avoid heavy taxation from a poorly planned estate and leave them the maximum you possibly can.
This is where providing a tax efficient inheritance is important and where ‘Estate Planning’ is vital. Find out more about Estate Planning here.
Estate planning will look at factors such as your mix of money and assets as well as the number of heirs, and structure an estate plan that will fulfill your wishes and be as tax efficient as possible. This could involve setting up a trust or even annual donations of money to your heirs before you have passed on.
2. Receiving an inheritance
When receiving an inheritance, no matter how big or small, it is important to know how this will affect your tax responsibilities.
Will I have to pay tax on the inheritance I receive?
In South Africa, when you receive an inheritance, regardless of whether it is from a resident or non-resident, you will not be liable to pay any tax. Depending on the size of the estate, there may have been estate duties as well as an amount for Capital Gains Tax that were already deducted from the amount you received.
Will I have to pay Capital Gains Tax on my inheritance?
If you have inherited property directly, you are not liable to pay Capital Gains Tax until such time as you sell the property. If however you are receiving an inheritance payout where property was part of the estate, the executor may have already paid Capital Gains Tax. Either way, you will not be liable to pay Capital Gains Tax on receipt of assets or monies. See more about Capital Gains Tax here.
For more specific advice and assistance on tax related to inheritance, contact Dirmeik Consulting:
Cape Town 021 421 4444,
Johannesburg 010 007 3026,
Durban 031 007 0881