Estate tax laws target the rich

COULD BE EXEMPT FROM INHERITANCE DUTIES IN THE FUTURE Experts are recommending that government remove all duties on estates worth less than R15million.

Only high net worth individuals will in future be liable for estate duty, should tax experts’ proposals find their way into law.

The committee tasked with a comprehensive review of South Africa’s tax system has recommended that the “primary abatement” – the portion of a net estate free from estate duty – be increased to R15 million. This should be done irrespective of the individual’s marital status and the inter-spousal exemption should be withdrawn, the Davis Tax Committee proposes in its Second Interim Report on Estate Duty. Currently, amounts inherited by a spouse are free from estate duty. Its first report recommended the primary abatement be increased to R6 million per taxpayer from the current R3.5 million. It also proposed the estate duty rate should be increased from 20% to 25% where the dutiable value of the estate exceeds R30 million.

“It must be recognised that the beneficiaries of an estate are largely dependent on passive income. Interest rates have effectively halved since the general abatement was last increased [in 2007], thus reducing interest income and/or accelerating the diminution of capital. Thus there is an urgent need for a generous increase of the general abatement,” the committee said this week.

It said a taxpayer’s house and personal effects could easily exceed R3 million, and even if the abatement was increased to R7.5 million, the remaining R4.5 million would be insufficient to cover the needs of a middle class family should the breadwinner die. About 90% of the estates reported to the South African Revenue Service (Sars) during the 2014/15 fiscal year had a value of less than R15 million.

“However, their actual estate duty liability, R556 million, comprises 40% of the total estate duty collection of R1.406 billion. It can thus be concluded the loss of estate duty associated with dramatically increasing the primary abatement is no cause for alarm,” the committee said.

It estimated the loss of estate duty collections (R556 million) would be recovered by the removal of the inter-spousal bequest exemption. “This recommendation would have the added benefit of allowing Sars to concentrate its resources on the thorough examination of all dutiable estates with a value greater than R15 million. Based on 2015 statistics, this would reduce the number of dutiable estates from 1 445 to 135.” Louis van Vuren, CEO of the Fiduciary Institute of Southern Africa, says the intention is to tax the estates of high net worth individuals rather than those of the middle class.