Tax effects on a deceased estate

A brief overview of the most important estate-planning taxes.

When a person dies, the executors are liable to ensure all their relevant tax returns are completed, submitted and assessed by Sars for payment by the estate, if applicable.

Before March 1, 2016, tax returns would have to be submitted until the deceased’s date of death. Thus all arrear returns, together with the final return (applicable for the period from March 1 of that particular tax year until the deceased’s date of death), must be submitted for assessment. Once these tax returns are formally assessed and paid, the executors’ responsibility to declare income for the deceased ends.

Any income earned by the estate after the date of death is taxable to beneficiaries. This is in proportion to the shares of the income they’re entitled to. Executors must ensure beneficiaries are fully informed of their duty to declare the said income and provide them with the information they need to properly include the income in their tax returns.

An Income Tax Act amendment applies to deceased estates where the deceased passed away on/after March 1, 2016. The pre-date-of-death tax position remains the same for executors, but they now receive a further responsibility. Once the pre-date-of-death taxes are finalised, the estate must be registered as a new tax payer, with the executor again having to account for all income earned in the estate from the day after date of death. This applies until the master has formally approved the liquidation and distribution account of the estate.

Capital gains tax (CGT)

CGT’s applicable to a deceased estate as it is to individuals. The exception is that death is regarded as a deemed disposal of assets subject to CGT, eg. immovable property, shares, and unit trusts. The executor must declare the deemed disposal of all these assets in the final tax return of the deceased with any tax payable being a liability in the estate and therefore deductible for estate duty purposes.

Any post-date-of-death sales would now form a part of the applicable postdate-of-death tax returns, and the executor must account for any sales out of the estate in the applicable post-date-ofdeath tax period.

Estate duty

Estate duty’s applicable where the net value of a deceased estate is above the individual R3.5 million estate duty rebate. The duty’s then payable at a 20% flat rate on the amount over R3.5 million. If the net value of the estate’s over R30 million and the deceased passed away on March 1, 2018 or later, duty’s payable at 20% on the dutiable estate up to R30 million, with 25% payable over R30 million.

When the deceased has a surviving spouse, there’s an exclusion of all assets bequeathed to the latter as there’s no duty applicable to assets awarded to surviving spouses.

Ungerer is a director in Mazars’ wills and estates department