You would have to know that you will die before January 1 next year if you wanted to ramp up your contributions to a retirement annuity (RA) fund to reduce your estate duty liability.
In response to the proposed changes to the tax-deductibility of contributions to RA funds, Personal Finance reader Keith Payne asked whether taxpayers can “load” their contributions above the taxdeductible limits for the rest of this tax year to take advantage of the exemption. Payne wanted to know whether he can pay large amounts into a RA this year, to put as much as possible into the fund before the estate duty loophole is closed.
Jenny Gordon, the head of retail legal support at Alexander Forbes, says the Taxation Laws Amendment Bill of 2015 makes it clear that if you die after January 1, 2016, any contribution to a retirement fund made from March 1 this year that exceeds the deductible limits will be subject to estate duty if it has still not been deducted or exempted by the time the contributor dies.
“So, although the draft bill is not yet law, as soon as it is enacted, all after-tax contributions made after March 1, 2015 that are not written off by the time the person dies will be included in the estate duty calculation if death occurs after January 1, 2016.
“The only window period will be in the unfortunate event of death prior to January 1, 2016. Because people generally cannot predict their date of death, there is no window of opportunity to over-contribute,” Gordon says.
The estate duty amendment in the Taxation Laws Amendment Bill applies to any contribution made after March 1, 2015 that was not deducted or exempted by the date of death where the person dies after January 1, 2016.
“It does not matter whether the beneficiary elects to take the death benefit as a cash lump sum or purchases an annuity. The determining factor is that the deceased retirement fund member paid an amount into the fund that did not qualify for a deduction or an exemption. That amount will be included in the estate of the deceased member for estate duty purposes,” Gordon says.