SENSIBLE ESTATE PLANNING
DISCUSSING ESTATE DUTY
Issues to keep in mind when making estate planning decisions. By Phomolo Moreng, Financial Paraplanner- NFB East London.
As with a financial plan, a review of a client ' s estate planning strategies should be held on a regular basis, to determine whether the current strategies are still fulfilling your goals and are still in line with ever changing legislation.
Over the past years and in accordance with its mandate, the Davis Tax Committee( DTC) has made several proposals to the Minister of Finance pertaining to our tax system as a whole.
The committee submitted its first report on estate duty in 2015, where it raised a couple of issues which, amongst others, included the issue concerning the decrease in estate duty collections by the South African Revenue Services( SARS).
In August 2016, the committee submitted its second and final interim report on Estate duty. In the report the DTC touched on the issues it had raised in the first report and made further recommendations which amongst others include:
= The repeal of the inter-spouse exemption( Section 4( q) deduction). This exemption makes it possible to exempt any bequeaths made to a surviving spouse from estate duty. The committee believes that the exemption excludes a lot of South African families and could discriminate against people on the basis of marital status.
= In the first interim report, the committee noted that the current primary estate duty abatement of R3.5 million has not been increased in the past 9 years, and therefore should be increased to R6 million per tax payer- a recommendation which received a favourable response.
4
In the second report the committee adjusted its recommendation and proposed a R15 million increase in the abatement per tax year, regardless of a tax payer ' s marital status. The
sensible finance Mar17 implication of this proposal is that estate duty will be paid by high nett worth individuals.
Furthermore the committee proposes the removal of the inter-spouse abatement, in favour of the“ one taxpayer, one tax return” principle.
= Reintroduction of the progressive tax system for estate duty.
Nett estates higher than R15 million will pay estate duty at the current rate of 20 %. Nett estates higher than R30 million will pay estate duty at an increased rate of 25 %.
= Repeal of the Capital Gains Tax( CGT) rollover between spouses, followed by an increase in the CGT death exemption from the current rate of R300 000.00 to R1 million.
= Following the repeal of the inter-spouse exemptions from estate duty and CGT, the committee proposes that the same inter-spouse exemption be reviewed for Donations Tax purposes, to ensure that there is no loop hole in tax.
Considering that donations between spouses is an everyday activity in some households, the exemption should only apply to assets that are not dutiable in terms of the CGT provisions, such as personal use assets and cash.
To ensure that the provision is not abused, a monetary limit will be set for personal use assets. For cash amounts, the“ enduring benefit” rule will be applied, which will exclude amounts from Donations Tax provided they do not create a benefit which can be enjoyed for a period longer than a year. This will thus ensure that cash transfers are used for the maintenance of the family within a single year. continued on page 28