Davis proposal to overhaul estate duty abatements

THE Davis Tax Committee (DTC) recently published its much anticipated second report on estate duty.

In its report, the DTC makes a number of recommendations on the taxation of estates and trusts, including the inter-spouse and primary abatements. It is important to note that these are only advisory in nature and it remains to be seen whether the Treasury will draft legislation to give effect to the recommendations.

Any bequest to a surviving spouse is currently entirely exempt from estate duty. Therefore, if married persons leave their estates to each other the payment of estate duty is postponed until the death of the surviving spouse. The DTC has identified a number of problems with the inter-spouse abatement in Section 4(q) of the Estate Duty Act, 1955, such as the inconsistent treatment of married and single parent families. If the purpose of the abatement is to provide relief to families on the premature death of the breadwinner, it is at present inadequately inclusive, as it would, for example, exclude a single-parent family where the parents were divorced or never married. The DTC has thus recommended that the inter-spouse abatement should be withdrawn and replaced with a single all-encompassing primary abatement.

The primary estate duty abatement is currently R3.5 million and has not been increased since 2007. The DTC recommends that this should be substantially increased to R15 million for all taxpayers, irrespective of marital status. The recommendation effectively seeks to exclude the middle class from estate-duty liability and target persons with larger estates. The DTC has also suggested that the estate-duty rate be increased from 20% to 25% for the dutiable value of an estate exceeding R30 million.

Also under consideration was whether levying capital gains tax (CGT) and estate duty on the same asset amounted to double taxation. The DTC was of the view that it did not, as CGT was an income tax on capital income, unlike estate duty, which is a wealth tax. If its estate duty recommendations are implemented, the DTC proposes that the CGT provisions which give rollover relief to a taxpayer that transfers an asset to his spouse, should also be repealed. In its place there should be a CGT death exemption of R1 million. According to the DTC, this, coupled with other exemptions like the R2 million primary residence rebate, should be sufficient to address any concerns.

Palmer is a director in the Commercial Department at Garlicke & Bousfield. He can be contacted at 031 570 5496, 083 637 1868, or e-mail graeme.palmer@gb.co.za

NOTE: This information should not be regarded as legal advice and is merely provided for information purposes on various aspects of tax law.