It seems a fair assumption that the estate of the deceased person is responsible for, and thus should pay, the relevant Estate Duty; but this is often not the case.
Beneficiaries of deceased estates and life policies are often caught off guard when requested to pay the Estate Duty apportioned to the benefit they receive.
Estate Duty is levied on the worldwide property and deemed property of a natural person who is ordinarily resident in South Africa and, on South African property of non-residents. Various deductions under section 4 of the Estate Duty Act, 1955 are allowed to determine the net value of the estate. By means of explanation, the simplest formula for determining Estate Duty as follows:
GROSS Value of the Deceased Estate
LESS: Allowable deductions (Section 4)
= NET Value of Estate
LESS: Sect 4A rebate (currently R3,5 million)
= Dutiable Amount
X Estate Duty %
= ESTATE DUTY PAYABLE
The Executor of the Estate, in his/her capacity as Executor, is responsible for the payment of all the Estate Duty concerned; and in some instances, this includes recovering the Estate Duty payable from the beneficiaries.
The good news is that beneficiaries would only become liable for Estate Duty in the event that the Estate exceeds a net value of R3,5 million, as no Estate Duty would be payable for an Estate below the net value of R3,5 million.
So, who is liable for the Estate Duty?
Beneficiaries become liable for the Estate Duty if certain property of deemed property accrues to them. The types of property and deemed property which result in beneficiary liability are:
- Usufructs, Fiduciary Interests, and Annuities, and
- Insurance policies paid to the beneficiary and exempt donations.
Estate duty on fixed property (buildings), cash, motor vehicles, etc. is payable by the Estate and not by the specific beneficiary.
To ensure the Estate Duty is fairly apportioned to the relevant beneficiary a specific formula is used.
Each party’s pro-rata portion of the Estate Duty is calculated as follows: Total value of the benefit due to the beneficiary divided by the Total Net Value of the Estate multiplied by the Estate Duty Payable
Example: 1. Policy paid to Peter = R2 million, 2. Net value of the Estate = R6 million, 3. Estate Duty Payable R500,000
Peter = 2,000,000/6,000,000 x 500,000 = 166,666.67
Estate = 4,000,000/6,000,000 x 500,000 = 333,333.33
Total Estate Duty Payable = 500,000.00
When is Estate Duty due?
Estate Duty is due within 1 year of date of death or 30 days from date of assessment if the assessment is issued within 1 year of date of death. Currently, interest is levied at 6% p.a. on late payments.