The purpose of this communication is to inform clients of certain tax increases and proposals that will have an effect on Estate and Financial Planning. Only those changes and proposals directly affecting Estate Planning will be dealt with.

1. Capital Gains Tax

The inclusion rates has been increased substantially.

  1. 1 Individuals/Special Trusts:
    ° Inclusion rate:
    • 40% (currently 33.3%)

    ° Maximum effective rate:
    • 16.4% (currently 13.65%)
  1. 2 Companies:
    ° Inclusion rate:
    80% (currently 66.5%)

    ° Effective rate:
    • 22.4% (currently 18.6%)
  1. 3 Trusts:
    ° Inclusion rate:
    • 80% (currently 66.5%)

    ° Effective rate:
    • 32.8% (previously 27.3%)
  1. 4 Annual exclusion and exclusion on death:
    ° Annual exclusion:
    • R 40 000 (currently R 30 000)

    ° Exclusion in year of death:
    • R 300 000 (no increase)

Effective for years of assesment commencing on or after 1 MARCH 2016.

2. Transfer Duty 

On transfers of property valued above R10 000 000 (ten million rand) Transfer Duty will amount to R937 500 plus 13% of the value above R10 000 000 (ten million rand).

Below R10 000 000 (ten million rand) the rates remain the same.

Effective for property acquired on or after 1 MARCH 2016.

3. Estate Duty

No amendments to the rate or the basic deduction at this point in time.

4. Donations Tax

No amendments.

5. Measures to prevent tax avoidance through trusts.

It was stated that some taxpayers use trusts to avoid paying Estate Duty and Donations Tax by selling assets to the trust and leaving the purchase price on interest free loan:

“to limit taxpayers’ ability to transfer wealth without being taxed government proposes to ensure that the assets transferred through a loan to a trust are included in the estate of the founder (we assume that it refers to the lender or donor) at death and to categorise interest free loans to trusts as donations.

Further measures to limit the use of discretionary trusts for income splitting and other tax benefits will also be considered.”

6. Davis Tax Committee (DTC)

In a Webinar presented by Judge Dennis Davis in November 2015 he indicated that the DTC will most probably not alter the conduit principle with regard to trusts and will consider legislation to ensure that the use of interest free loans in financing trusts will result in the assets acquired through such interest free loans to be included in the estate of the person who made the loan to the trust.

Reference was also made to the possibility of a higher basic rebate. A figure of R15 000 000 was mentioned.

Judge Davis also indicated that they will not proceed with the recommendation to tax all distributions from off-shore trusts as income but will effect the necessary amendments to Paragraph 80 of the Act with a view to address the problem.

The possibity of a staggered rate of Estate Duty was also mentioned.


Capital Gains Tax

While we expected a hike in the inclusion rate for Capital Gains Tax, the percentage was higher than expected. Capital Gains Tax on death combined with Estate Duty can result in an effective tax rate on death, (on an asset that is subject to Capital Gains Tax and Estate Duty), of more than 32%!

The hike in the inclusion rate will also increase the costs of transferring assets in the process of Estate Planning.

Estate Duty

We are still awaiting the second report of the DTC in this regard and will comment as soon as it becomes available.


The wording of the paragraph quoted above is, to say the least, vague and perplexing. Various questions immediately arise.

To name but a few:

  • Will the legislation be applicable only to transfers after date of promulgation? If not, it will amount to retroactive legislation.
  • The paragraph only refers to interest free loans, what about loans at a lower interest rate?
  • Would it be adequate for the taxpayer to start charging interest on a loan that was interest free?
  • What is meant by “to categorise interest free loans to trusts as donations”?
  • How will the value of the donation be calculated – with reference to the interest free part only or with reference to the capital of the loan as well? Surely the intention is not to tax both the loan and the assets acquired by the trust through the loan. That will amount to double taxation!
  • What about an interest free loan to a company of which the shares are held by a trust?

We will have to await legislation in this regard in order to understand the effect thereof on Estate Planning.

You will be kept up to date on developments in this regard.

We do not think that this will mean the end of the trust as we know it, but one must take cognisance of the developments and try to plan accordingly.

Exciting challenges lie ahead for the estate owner and his/her adivisors!

GPJ van den Berg
DIRECTOR – Estate & Trust Services (Pty) Ltd
T: +27 (12) 361 5001
F: +27 (12) 361 6311

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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