When a loved one dies, most people aren’t in the right frame of mind to manage complex admin. Unfortunately, this is generally one of the first things you’re burdened with. The most crucial items on the checklist involve laying the deceased to rest. It’s no surprise that most people either postpone estate matters or assume someone else will manage affairs. Unwinding an estate can be taxing – even more so if you’ve emigrated. So how do you receive your South African inheritance while living abroad?
Fin Select takes a look at deceased estates and how South African emigrants can receive their inheritance offshore.
Is your stay abroad temporary or permanent?
The most important factor that will determine the process for receiving your inheritance is how permanent your move is. SARS has three categories for those receiving a South African inheritance:
- South African Residents Temporarily abroad
- South Africans who have formally emigrated
- Foreign citizens who are beneficiaries of deceased estates
South African temporarily abroad
South Africans who are temporarily abroad and plan to return home some day can use annual allowances to transfer their inheritance abroad. If the inheritance is under R1-million, funds can be transferred using the Single Discretionary Allowance (SDA). An inheritance greater than this can be transferred using the R10-million Foreign Investment Allowance (FIA). Alternatively, you can opt to use your SDA incrementally to transfer up to R1-million in consecutive years. If you have a South African spouse, they can also use their SDA to transfer the proceeds offshore.
We’ll talk about the different processes a bit later.
South African who has formally emigrated
If you’ve formally emigrated, the process is a bit different than that of South African residents. Formal emigration takes two forms:
- Individuals who completed financial emigration when the SARB still imposed exchange control
- Individuals who completed tax emigration after SARS took over from the SARB
Provided your tax affairs are in order, proof of emigration can be provided in writing to SARS. See ‘Authorisation of International Transfer’ (AIT) below for clarity on transferring funds abroad.
Foreign citizens receiving a South African inheritance
We won’t go into detail around the processes and procedures for foreign citizens in this article. The most important point to remember in this case is that ‘authorised dealers’ (banks transferring funds) may not demand a TCS PIN from non-residents.
Fin Select can still assist with fund transfers and forex in many cases, or liaise with South African authorities and banks on your behalf. Register your details and we’ll contact you to discuss your needs.
Death and taxes: how it affects your inheritance
Beneficiaries of South African estates aren’t generally liable for taxes on their inheritance out of pocket. Estate duties and other deductions may, however, still be due depending on the type of assets, their location and value.
Let’s take a look at some key rules:
- R3,5-million abatement: An estate is only liable for estate duty if it exceeds the R3,5-million ‘abatement’
- Up to R7-million abatement: The ‘unused’ abatement portion of a deceased spouse or life partner’ automatically’s estate is automatically ‘transferred’ to the surviving spouse/partner. This means that the second spouse/partner’s estate could possibly enjoy an abatement of R3,5-R7-million.
- 20% Estate duty: For dutiable estates up to R30-million, estate duty is levied at 20%
- 25% Estate duty: Dutiable estates worth more than R30-million are due 25% estate duty
- Capital gains and income tax: These taxes due by the deceased (if applicable) are deducted from the estate value before duties are levied.
- Income after death: Income accrued after the deceased’s death but before distribution of assets is managed by Section 25 of the Income Tax Act.
- 1 year: Estate duty is due within 1 year of the date of death or 30 days from the date of assessment.
- 6% interest p.a.: Interest on late payment of estate duty is levied at 6% p.a.
Deductibles against an estate
Estate duty is luckily not due on the gross value of an estate, but rather on the net value. This means that the state allows certain deductibles before estate duty is calculated.
Some estate duty deductibles include:
- Funeral/burial expenses
- Debts owed by the deceased: whether loans, credit cards, store accounts, overdrafts and abovementioned taxes
- Administrative fees: this includes executor charges, advertising costs for debtors and creditors, and so forth.
- Accrual claims by surviving spouses in community of property with accrual
- Amounts left to surviving spouses/permanent life partners (Section 4Q of the Estate Duty Act)
- Amounts bequeathed to public benefit organisations
Exceptions and caveats
There are some exceptions applicable to the administration of a deceased estate depending on the nature of their estate.
- Executor liability: If an executor disposed of assets or funds that could have legally applied to the settlement of estate duties they could be personally liable for such duties.
- Beneficiaries named in policies: If a beneficiary receives money directly from a policy, they are liable for duties on the amount. This won’t be levied from the estate.
- Interest on international deposits: Most countries don’t charge taxes on inheritance received from abroad. They may, however, charge interest and other admin fees once the funds are deposited into a foreign bank account.
- Dying intestate: Where someone dies intestate (without a will) the rules may differ quite a bit.
The most important question is whether you’re a South African tax resident…
Tax residency and South African inheritance
Saffas abroad often maintain an ‘out of sight, out of mind’ attitude when it comes to South African admin. The rumour on the streets around the ‘ordinarily resident’ and ‘physically present’ tests create a false sense of comfort. While SARS certainly uses these rules to determine tax residency, you’re not considered a non-resident for tax purposes until your status has been tested.
These tests are based on the amount of time spent in certain world regions as well as time spent in South Africa – both continuously and in aggregate over certain periods. We’ll discuss residency in an upcoming article.
The 3-Year rule: why you should complete tax emigration
In general SARS uses the ordinarily resident or physical presence tests to determine tax residency. While these are generally tested retrospectively, SARS does accept an ‘intent’ to live abroad permanently as sufficient cause to break tax residency.
The issue comes where individuals fail to inform SARS of this intent and yet still benefit from tax relief OR allowances after leaving. SARS imposed a tax directive (IT-AE-33-G01) which requires South Africans to remain outside the country for a period of three years before tax emigration is acknowledged retroactively.
Waiting too long to complete tax emigration could burden you with numerous tax liabilities. It may also be difficult to find all the necessary paperwork required for AIT.
Catch-22: have you used your benefits as taxpayer?
One of the ways that SARS ensnares SA expats is their lax use of SA taxpayer benefits. Do you consider yourself free of the tax man?
You may be considered a South African tax resident if you answer ‘YES’ to one or more of the questions below:
- Do you have South African accounts, cards or policies?
- Have you used any SA accounts, cards or policies to transfer funds or transact abroad?
- Have you used any money from policy, trust or annuities paid to your SA accounts abroad?
- Have you stopped filing taxes with SARS since living abroad?
- Have you stopped disclosing your income or deductions to SARS and financial services providers in SA?
- Did you tell local financial service providers and tax agencies that you’ve immigrated permanently?
- Do you receive interest or other income from South Africa?
- Did you apply for tax relief under a Double Taxation Agreement (DTA)?
- Have you transferred funds to your SA investments, accounts or trusts since moving abroad?
What to do if you’re a beneficiary of a deceased estate?
The Department of Justice made significant efforts to ease the administrative process for South African beneficiaries of deceased estates. This includes a new Masters’ Deceased Estate Online Registration System which went live on 10 October 2023. While this system is far better than the old process, it’s still not convenient for South Africans living abroad.
But these services are only really viable if you have the time and capacity to manage all the different applications and submissions.
Fin Select can help you receive your SA inheritance
One of the greatest challenges for South African emigrants is getting access to the different parties involved. Whether tax agencies, banks, insurers or lawyers – it can be difficult to gain an audience when you’re thousands of kilometres away. Time zone differences further hamper access to the necessary services.
Luckily Fin Select is here to help you out! We know what paperwork is required at what stage, understand the tax implications and can deal with authorised dealers on your behalf.
Simply complete your details and we’ll get in touch for a free consultation.
Content disclaimer
Fin Select New Zealand is a subsidiary of Fin Select (Pty) Ltd, an authorised financial services provider licensed by the Financial Sector Conduct Authority and the South African Reserve Bank. We are authorised to deal with various authorised dealers. FSP No. 46307.
Content provided in these articles does not constitute financial services or advice. Views expressed in the articles are those of our freelance writers and not those of Fin Select or our affiliates.
While every effort is made to verify information before publication, accuracy cannot be guaranteed and the reader is urged to consult reputable sources to confirm such at the time of reading.
Sources:
- Fin Select South Africa
- The South African Revenue Service
- Department of Justice: Republic of South Africa
- Brenthurst
- United Kingdom Government: His Majesty’s Revenue & Service
- Sentinel International
- Smart About Money South Africa
- Central Bank of Swaziland