Prepare to fork out more

Tax announcements in the 2018 budget will have wide-ranging implications for the administration of deceased estates and trusts, including higher costs.

VAT will rise to 15% from April 1. Estate duty increased from 20% to 25% for estates of R30 million plus on March 1. 1. VAT hike Fiduciary Institute of Southern Africa’s Louis van Vuren says most professional executors and trustees are registered VAT vendors and will charge 15% VAT on their fees.

Together with Master’s fees, increased on January 1, this could result in quite a substantial increase in administration costs. Master’s fees were previously capped at R600 where the estate value was just over R200 000; currently a maximum fee of R7 000 is levied once the estate value reaches R3.6 million.

As to deceased estate administration, the VAT hike means an increase in the effective maximum executor’s fee from 3.99% to 4.025% or R350 for every R1 million of gross estate value, Van Vuren says.

It’ll also lead to an increase in the cost of all services rendered to the deceased estate by other professionals.

A back-of-an-envelope calculation suggests a R5 million estate, which includes R3 million fixed property, will incur roughly R10 000 in additional costs due to VAT and Master’s fee hikes.

Regarding trust administration, most professional trustees charge a trustee fee of 1% to 1.3% of trust capital each year. If the trustee fee is 1%, a trust with R5 million of assets will attract R500 more in fees purely due to the VAT hike, Van Vuren says. 2. Estate duty hike While the Davis Tax Committee previously recommended the estate duty rate increase from 20% to 25% where the dutiable value of the estate exceeds R30 million, it in addition proposed the primary abatement (portion of a net estate free from estate duty) increase to R15 million (currently R3.5 million), the spousal exemption be withdrawn and the unlimited inter-spousal exemption within the donations tax system be reconsidered. Treasury only adopted the first proposal.

Estate duty and donations tax only contribute a few drops to the tax bucket, yet the fractured introduction of tax recommendations will make the estate duty system and estate planning even more complex, Van Vuren explains.

The budget also proposed the “official rate of interest” – currently the repo rate plus 100 basis points (7.75%) – increase to a level closer to the prime rate of interest (currently 10.25%).

Van Vuren says despite the interest rate proposal, the case for moving growth assets to a trust could become stronger due to the higher estate duty rate.