What Is Estate Duty?
Estate duty is a tax levied on the estate of a deceased South African resident. It is calculated on the value of everything you own at the date of your death — your property, investments, business interests, cash, and certain life insurance policies — less specific deductions and the primary abatement.
The rates are:
- 20% on the dutiable estate up to R30 million
- 25% on the dutiable estate above R30 million
Every South African resident has a primary abatement of R3.5 million under Section 4A of the Estate Duty Act. This means the first R3.5 million of your dutiable estate is exempt from estate duty. For a married couple, the unused portion of the abatement on the first death rolls over to the surviving spouse — effectively giving a married couple a combined abatement of R7 million.
Everything above the abatement is taxed at 20% — or 25% above R30 million. On a R10 million estate, that is R1.3 million in estate duty. On a R20 million estate, it is R3.3 million. These are not abstract numbers. They are the amounts SARS takes before your family receives a single rand of what you built.
What Is Included in Your Estate?
Understanding what is included in your estate — and what is not — is fundamental to estate planning. The executor of your estate will include:
- All property — your primary residence, investment properties, holiday home
- Business interests — shares in private companies, membership interests, partnerships
- Investments — unit trusts, shares, bonds, endowments
- Cash and bank balances
- Life insurance — policies payable to the estate (not to named beneficiaries)
- Loans receivable — including loans owed to you by a trust or company
- Worldwide assets — as a South African resident, your global assets are included
- Assets in a trust — property, investments and business interests properly held in a trust do not form part of your personal estate
- Retirement fund benefits — pension, provident fund, and retirement annuity benefits are generally excluded (paid to nominated beneficiaries or the fund)
- Life insurance payable to named beneficiaries — not payable to the estate itself
- Assets bequeathed to a surviving spouse — exempt from estate duty on the first death
A Real Example — What Estate Duty Looks Like
Let us look at a typical South African business owner's estate at death:
Example Estate — Business Owner, Single Death (no spouse)
R2,060,000 — taken by SARS before your children receive a rand. And this is before executor's fees, which can be up to 3.5% of the gross estate value — another R525,000 on a R15 million estate. The total cost of dying without a plan can easily exceed R2.5 million on an estate of this size.
The most common thing I hear from families after a death is: "We had no idea. We thought the estate just passed to the children." Estate duty is the tax nobody talks about — until it is too late to do anything about it.
— Chris Schutte, Registered Tax Practitioner · Your Accountant®The Trust Loan Account Problem — Critical to Understand
Many South African business owners have a trust — but have not addressed the loan account problem. Here is what happens.
When assets are transferred into a trust, the transfer is typically done by way of a loan. The trust "buys" the asset from you, but instead of paying cash, it records a loan owed to you. The asset is now in the trust — excluded from your estate. But the loan account is an asset in your hands — and it IS included in your estate.
Over time, if the loan account is not systematically reduced, it can grow to represent a significant portion of your estate — sitting in your estate attracting estate duty, despite the underlying assets being in the trust.
The solution is deliberate, ongoing loan account reduction — using the annual donations tax exemption and other legitimate mechanisms to reduce what the trust owes you during your lifetime. Every rand of loan account reduced is a rand removed from your estate permanently.
But this takes time. It requires consistent annual action over many years. It cannot be done in a hurry — and it absolutely cannot be done after you have died. The time to address this is now.
How to Legally Reduce Estate Duty — The Tools Available
1. Transfer Assets into a Trust
Assets properly held in a trust do not form part of your personal estate. Future growth on those assets — property appreciation, investment returns, business profits — accumulates in the trust, not in your personal estate. The estate duty saving compounds over time as the asset values grow outside your estate.
2. Reduce Trust Loan Accounts Systematically
Use the annual donations tax exemption (R100,000 per year for a natural person) to reduce the loan account owed to you by the trust. Done consistently over 10 to 20 years, this can eliminate a substantial loan account completely — removing it from your estate permanently and tax free.
3. Life Insurance Payable to Named Beneficiaries
A life insurance policy payable to your estate is included in your estate for estate duty purposes. The same policy, payable to a named beneficiary (your spouse or children), is excluded. The policy payout can also be used by the beneficiary to pay estate duty on the rest of the estate — preventing a forced sale of illiquid assets.
4. Use the Spouse Bequest on First Death
Assets bequeathed to a surviving spouse are exempt from estate duty on the first death. The spouse also inherits any unused portion of the primary abatement. A correctly drafted will can maximise these benefits, ensuring the first death triggers no estate duty at all.
5. Retirement Fund Benefits
Retirement annuity, pension and provident fund benefits are generally excluded from your estate. Maximising retirement fund contributions during your lifetime not only saves income tax (via the Section 11F deduction) but also removes these amounts from your estate on death.
Why Urgency Matters — The Window Closes
Estate planning is uniquely time-sensitive in a way that most financial planning is not. You can change your investment strategy tomorrow. You can restructure your business next year. But estate planning — particularly the reduction of trust loan accounts and the transfer of assets out of your personal estate — requires time that cannot be compressed.
The annual donations tax exemption is R100,000 per year. It does not roll over. You cannot make five years of donations in one year. Twenty years of R100,000 annual donations represents R2 million removed from your estate — but only if you start twenty years before you need it.
A business owner who is diagnosed with a serious illness at 65, having never structured their estate, has effectively lost decades of planning opportunity. The window to use the trust, to reduce the loan account, to restructure the life policies — all of that closes permanently at death.
I have sat with families who have lost a loved one and watched the executor calculate the estate duty. The grief is compounded by the shock of what SARS takes. The question they always ask is: "Could this have been avoided?" The answer, almost always, is yes — if they had planned earlier.
— Chris Schutte, Registered Tax Practitioner · Your Accountant®Frequently Asked Questions
Don't Leave Estate Duty to Chance
Your Accountant® provides practical, implementable estate planning advice — trust structuring, loan account reduction strategies, will review and coordination with your attorney. Book a confidential consultation with Chris Schutte today.
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