Estate duty abatements need overhaul

Any bequest to a surviving spouse is currently entirely exempt from estate duty. Therefore, if married people 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 this as stated in section 4(q) of the Estate Duty Act, 1955, as there has been 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. It has thus recommended that the inter-spouse abatement should be withdrawn and replaced with a single all-encompassing primary abatement.

Currently, the primary estate duty abatement is R3,5m and it has not been increased since 2007. The DTC recommends that this should be substantially increased to R15m for all taxpayers irrespective of marital status, which effectively seeks to exclude the middle class from estate duty liability and target people 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 R30m.

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that the CGT provisions which give rollover relief to a taxpayer that transfers an asset to his spouse, should also be repealed.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 R1m. According to the committee, this, coupled with other exemptions like the R2m primary residence rebate, should be sufficient to address any concerns.

It remains to be seen whether Treasury will draft legislation to give effect to the recommendations.