Article courtesy of Law Dot News |Estate Planning | Wills | Property

Estate Planning: The Ambush Tax Lurking in the Wings

“I can’t afford to die; I’d lose too much money.” (George Burns, comedian)

At the heart of any estate plan lies your will. Pair it with a file containing all the information and documents that your executor and heirs will need to wind up your estate, and you’ve laid a solid foundation for protecting your loved ones when you’re no longer around to do so.

Hopefully, most of us have already crossed those two essentials off our “to do” list. But there’s a third step which doesn’t always receive the attention it requires: planning for the costs your estate will have to pay, including a number of taxes.

As with all things to do with SARS and tax, there are many detailed requirements and grey areas involved, so what follows is a general guide only. It’s no substitute for specific professional advice.

The big costs you should plan for

• Costs: Central to your estate planning will be understanding just how much each of your heirs will actually receive from your estate after costs, the most significant of which are usually executor’s fees and government taxes.
• Taxes: There are two main taxes to consider: estate duty, and capital gains tax (CGT). In this article, we’ll focus on the CGT aspect for the simple reason that it’s often forgotten about, and even more often misunderstood.

CGT: The ambush tax lurking in the wings

CGT is one of those low-profile taxes that lurks around unobtrusively in the wings, being ignored and forgotten about until it suddenly pops out of the woodwork.

In this case, the “popping out of the woodwork” will happen when you’re no longer around to be ambushed by it. That’s because CGT is triggered by a taxpayer’s death, which is a “deemed disposal” tax event. In other words, your assets are deemed to have been sold at market value on the day you died. And that triggers a tax liability for your estate on the asset’s growth in value since you acquired it – the capital gain.

Before we get into the nitty-gritty of putting figures to that liability, let’s share a smidgen of good news.

The good news: 3 big exclusions, boosted by Budget 2026

Note firstly that no CGT at all is payable on “personal-use assets”, retirement fund benefits and most mainstream life policies.

Secondly, there’s “spousal rollover relief”: liability for CGT on assets left to your spouse is “rolled over” so that it’s payable not by your estate but later on by your spouse (on sale) or by their estate (on death). That, of course, can make a tremendous practical difference in ensuring that your spouse will be okay financially.

Thirdly, the annual exclusion in year of death, the primary residence exclusion and the small business disposal exclusion can all reduce CGT substantially. And as we note below, Budget 2026 has boosted them all. Good news indeed!

1. Annual exclusion in year of death: If you sell assets during your lifetime, your CGT liability is reduced by an annual exclusion of R50,000 (up from R40,000). In the year of your death, this exclusion is boosted to R440,000 (previously R300,000).
2. The primary residence exclusion: This is a big one for property owners in respect of their “primary residence” (the home you ordinarily live in), with the exclusion increased from R2,000,000 to R3,000,000.
3. The small business asset disposal exclusion: If you leave a small business with a market value of up to R15,000,000 (previously R10,000,000), your estate may qualify for a R2,700,000 exclusion (was R1,800,000) on the assets of the business, which are deemed to have been disposed of on your death. Many small businesses will also qualify for wear-and-tear on assets used in the business. Quantifying this requires professional assistance.

How to calculate CGT

Now for the actual CGT calculation, which will give you a rough idea of the final liability so you can plan for it:

1. Include all your assets (except those mentioned above as not being subject to CGT) at their current market value.
2. Deduct the base cost of each asset; that is what you bought the asset for plus allowable costs such as costs of acquisition and the cost of subsequent capital improvements.
3. Calculate the capital gain or loss by subtracting the base cost from the market value.
4. Deduct all exclusions from the capital gain to calculate the net gain.
5. Multiply the net gain by the 40% inclusion rate to give you the taxable capital gain.
6. Finally, apply your marginal tax rate to that taxable capital gain to give you the final CGT liability.

Putting together a comprehensive estate plan, anchored by your will, is essential to ensure that your loved ones are properly catered for after you’re gone. You know who to call if you need any help!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

© LawDotNews

Article courtesy of Law Dot News | Personal Finance | Property | Tax – CGT Primary Residence
“We are also proposing additional tax measures to ease the financial burden on households and businesses, by adjusting personal income tax brackets and rebates fully in line with inflation.” (Minister of Finance Enoch Godongwana)

How much will I save if I sell my house?

A big highlight for property sellers and buyers is that, having remained unchanged since 2012, the primary residence exclusion for Capital Gains Tax has been increased from R2 million to R3 million. In addition, the annual CGT exclusion has been increased for individuals by 25% from R40,000 to R50,000, and for deceased estates by 47% from R300,000 to R440,000.

The big win is that when you sell your primary residence (the home you live in), the first R3 million capital gain is now excluded from CGT.

Have a look at the illustrative savings calculation below:

Primary residence CGT exclusion: R2m vs R3m

Transfer duty threshold unchanged

Unchanged from last year, you pay no transfer duty if the property you are buying sells for at (or below) the set threshold of R1,210,000.

Source: SARS

“Bracket creep” relief for taxpayers

Individual taxpayers:Your tax rates (and the associated rebates and medical tax credits) are increased in line with inflation. That’s welcome relief after last year’s unchanged tax tables which resulted in “fiscal drag” (also referred to as “bracket creep”) for anyone receiving a salary increase that pushed them into a higher tax bracket.

Trusts: Special trusts are by and large taxed as individuals, but other trusts are taxed at a flat rate of 45% – also unchanged from last year.

Source: SARS

Corporate taxes: The tax rate for companies remains unchanged, with substantial relief for smaller businesses.

Source: SARS

“Sin taxes” up: The details

Most sin tax increases were generally in line with or slightly below inflation. See the table below for full details.

Article courtesy of Law Dot News | Personal Finance | Property | Tax
Table 4.8 Changes in specific excise duties, 2026/27

Source: National Treasury (Table 4.8)

How much more or less will you be paying in income tax, petrol and sin taxes?

Use Fin 24’s Budget Calculator here to find out.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

© LawDotNews

Article courtesy of Law Dot News | Property | Tax

Selling Property this Festive Season: The Property Tax Angle

December and January have always been prime months for selling residential property in South Africa, and if you are a “Festive Season Seller”, here are two really important tips for you.

1. Plan your finances
   Understand and plan for all the financial implications, not just the legal ones.Prepare a cash-flow forecast so that you know what you will receive and when, and what you will have to pay and when. Your forecast will tell you what funds you must have available at all stages of the sale and transfer process, and it will answer your bottom-line question – what will be left in your pocket at the end of it all?
2. Don’t forget your CGT liability
   There are many expenses you should provide for (ask your lawyer to help you list them), but in this article we’ll only address one of them – the CGT (Capital Gains Tax) aspect.This is vital – if you made a “capital gain” on the sale (more on how to calculate that below) you could be liable to pay CGT. If so, it could well be a substantial liability, and not planning for it will leave you in a world of pain because if you can’t pay your tax bill SARS will be after you with a big stick (SARS has extensive powers when it comes to debt collection).
   
   There is a bit of good news: The advantages of owning your own family home, and the value of property generally as an investment channel, will for most people outweigh the pain of having to pay tax when you eventually sell. Plus, as we shall see below, paying CGT on a property sale is not nearly as painful as it would be to pay income tax on it. Indeed, if the capital gain on your primary residence is R2m or less, your CGT bill is nil!

How does CGT on a property sale work?

This is a complex topic, so what follows is of necessity a summary of general principles only – there is no substitute for specific professional advice here!

• What is Capital Gains Tax? CGT forms part of your income tax and is a tax on any “capital gain” you make on an asset, in this case a property. The capital gain is the difference between your base cost and the proceeds of your sale.
• What is “base cost”? This is what your property cost you to acquire (including transfer costs, transfer duty and the like) when you bought it. Note that CGT only kicked in on 1 October 2001, so if you bought the property before then it is the property’s value at that date that you will use. Qualifying improvement costs (extensions, additions and the like but excluding maintenance or repair costs) are also added to your base cost, so keep a separate note and proof of these as you incur them over the years. Our example calculation below assumes a homeowner who bought a number of years ago for R4m inclusive of transfer costs and duty, then spent a total of R500k on improvements (perhaps adding an extra room and a swimming pool).
• How do you calculate the “sale proceeds”? From the sale price you can deduct any costs of selling which are directly related to the sale, such as agent’s commission, advertising, legal costs and so on. In our example we assume net sale proceeds of R7m.
• How do you calculate the “capital gain”? This is the difference between the base cost and the proceeds of the sale (R2.5m in our example, before the primary residence exclusion).
• What can you deduct from the capital gain? If the property is in your personal name and is your “primary residence” (i.e., where you normally live) you can deduct a R2m exclusion from the capital gain. Note that if you used your house for business purposes or if you didn’t reside in it for the whole period of ownership, you need to take specific advice on how much (if any) of the exclusion is available to you. You can also deduct an “annual exclusion” of R40,000. In our example we assume the seller is entitled to both exclusions in full, resulting in a net capital gain of R460,000.
• How are you taxed on the net capital gain? The example below will help clarify this. Your capital gain is added to your annual income tax liability at the “inclusion rate” applicable to you. Individuals and special trusts have an inclusion rate of 40%, whereas other trusts and companies have an inclusion rate of 80%. You will then pay tax on that amount at your marginal tax rate (18% – 45% depending on your taxable income). In our example we assume an individual taxpayer paying tax at the highest marginal rate of 45%, the resulting tax liability of R82,800 amounting to just under 1.2% of the net sale proceeds. Our seller’s profit on the sale net of tax would then be R2,417,200.

So how much CGT will you actually pay?

For an individual your calculation is: Capital Gains Tax = Capital Gain x 40% inclusion rate x your marginal tax rate.

Have a look at the example below which assumes an individual home seller entitled to the full R2m primary residence exclusion and paying tax at the highest marginal tax rate of 45%. Then use your own figures and make your own calculation.

 (Source: Adapted from SARS examples)

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNew