Estate duty is essentially a tax levied on the estate of a deceased person. Occasionally you might hear it referred to as “inheritance tax”. Calculating the estate duty payable can be a very complex exercise, but here are some broad concepts to bear in mind:-
It encompasses “property” in the normal sense of the word (house, car, funds in the bank, investments etc.), but also includes “deemed property”, which can sometimes be a difficult concept to understand. I generally use the example of a life insurance policy – it has no value during the deceased’s lifetime, but on his death a value comes into existence – this is an example of “deemed property”.
Every person is entitled to an abatement – or estate duty free portion of their estate – of R3,5million (as per current legislation). Since 1 January 2010 there is a rollover between spouses ie; in certain circumstances the R3,5million abatement in the estate of the first-dying will “roll over” to the surviving spouse’s estate, so that on the spouse’s death the effective abatement is R7million.
There are a number of important deductions for estate duty purposes, the most important of these being (a) liabilities in the estate, (b) any inheritance/benefit which a surviving spouse receives and (c) any amounts bequeathed to a charitable or educational institution.
Having taken into account the “property” and “deemed property” in an estate, and deducting all the valid deductions, estate duty is levied at 20% on the balance.
This is a broad overview of estate duty, but it can be a very complex calculation, so it is important to approach a professional advisor for assistance.