September 2015: South African emigration – tax and your estate

The Davis Tax Committee (DTC) recently proposed significant changes to Estate Duty and Tax on trusts. The recommendations have already sparked heated debate and experts have warned that implementation thereof could lead to new forms of legal avoidance. If you have emigrated, or are planning emigration from South Africa, these recommendations could affect you!

The DTC recommendations

Among others, the committee recommended that:

• Resident trusts and their beneficiaries or donors be taxed as separate taxpayers.
• Inter-spousal donations tax exemption permitting tax-free donations in anticipation of death be removed.
• The principle of inter-spouse estate duty exemptions and roll-overs be withdrawn or subjected to specific limits.
• Existing primary estate duty abatement of R3,5M per taxpayer be increased to R6M.
• The current flat rate of 20% for estate duty and donations tax be retained.
• The deeming provisions of Sections 7 and 25B be repealed in respect of South African resident and non-resident trust arrangements.
• Offshore trusts no longer enjoy the distinction between income and capital distributions to SA beneficiaries – and all payments from foreign trusts be taxed at the higher, personal income tax rate.

By eliminating certain exemptions and introducing increases, estate duty collections could improve by between R10bn and R15bn from the current R1,486bn. This could greatly contribute towards reducing national debt levels.

Tax experts are still waiting to see if all the recommendations will be implemented – and how this will affect trusts as estate planning tools. For now, the proposals are still up for debate – so if you are planning relocation or formal emigration from South Africa, you may want to raise your concerns with the Minister of Finance. The public has been given until September to comment, after which the recommendations will have to go through formal legislative processes before being ratified.

Director at Webber Wentzel, Dan Foster, remains adamant that the best estate planning is still emigration. He has raised concerns about tax legislation – in particular the impact of high taxation, as well as the CGT charge which discourages people from bringing capital into South Africa and is even applied to foreign assets acquired before coming to the country.

Tax practitioners are hoping that the negative impact of these harsh tax measures be spotlighted and discussed to find possible resolutions before it’s too late.

Our advice is to keep yourself up to date with the facts.

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