Private client law in South Africa: overview
A Q&A guide to private client law in South Africa.
The Q&A gives a high level overview of tax; tax residence; inheritance tax; buying property; wills and estate management; succession regimes; intestacy; trusts; co-ownership; familial relationships; minority and capacity, and proposals for reform.
To compare answers across multiple jurisdictions, visit the Private Client Country Q&A tool.
The Q&A is part of the global guide to private client law. For a full list of jurisdictional Q&As visit www.practicallaw.com/privateclient-guide.
Tax year and payment dates
The official tax year for individuals, estates and trusts is 12 months beginning on 1 March and ending on the last day of February.
Income tax returns are submitted (either manually or electronically) to the South African Revenue Service (SARS) on an annual basis, during the period known as the tax season. The tax season generally runs from July to November during each tax year.
Provisional taxpayers (for example, individuals that derive income other than remuneration and companies) can submit electronic returns until January of the following year.
The tax payment date is determined by SARS and is specified on the assessment of the income tax return.
For provisional taxpayers:
A first provisional tax payment is due within six months of the tax year (end of August).
A second payment is due before the end of the tax year (end of February).
A third "voluntary topping-up" payment can be made within seven months of the end of the tax year (end of September).
Employment taxes are payable to SARS periodically, usually on a monthly basis.
Domicile and residence
This is not relevant in South Africa.
South Africa applies a residence-based taxation system. South African resident taxpayers are, subject to certain exclusions, taxed on their worldwide income regardless of the source. This includes capital gains tax on the disposal of certain assets, irrespective of where they are situated.
Natural persons. Natural persons are regarded as tax resident in South Africa if they are either:
Physically present in South Africa for a certain number of days (physical presence test):
more than 91 days in total in each of the current and previous tax years; and
more than 915 days in total during the previous five tax years.
The days do not need to be consecutive, however the physical presence test only applies to those that are not "ordinarily resident" at any time during a tax year. A person that is a resident in terms of the "physical presence test", but that is physically absent from South Africa for a consecutive period of 330 days, is deemed to be a non-resident from the day they ceased being physically present in South Africa.
Juristic persons: companies, trusts and persons other than natural persons. A juristic person is regarded as tax resident in South Africa if it is incorporated, established or formed in South Africa, or has its place of effective management in South Africa.
However, if a juristic person or natural person is deemed to be a resident of another country for the purposes of the application of a double tax agreement (DTA) that South Africa has with the other country, that person is not regarded as a resident of South Africa despite the application of the above tests.
Non-residents are taxed in South Africa on a source basis, meaning that receipts and accruals from a South African source are, subject to exclusions and the provisions of a double taxation agreement, taxable in the hands of non-residents. Capital gains tax further arises for a non-resident that disposes of:
Immovable property (real estate) situated in South Africa (or an interest or right in it, whether held directly or indirectly).
The assets of a permanent establishment in South Africa.
Taxation on exit
Where an individual, trust or company stops being a resident, the event is deemed as a disposal event where the person is deemed to have disposed of all of their assets (other than immovable property in South Africa) to a resident for market value on the day before ceasing to be a resident and deemed to have immediately reacquired the assets on the next day. The difference between the original cost of the assets and the market value of the assets is generally subject to capital gains tax (commonly referred to as an exit charge).
The tax year of the person is deemed to end on the day preceding the day he became non-resident in South Africa and the new tax year is deemed to start on the next day.
There is no temporary residence concept under the law.
For individuals, the tax residence criteria applies (see Question 2).
Therefore, subject to applicable double taxation treaties (DTAs), even though the person cannot be regarded as ordinarily resident, if the person satisfies the physical presence test then he is regarded as tax resident in South Africa.
Non-residents employed in South Africa may be subject to income tax in South Africa.
Taxes on the gains and income of foreign nationals
South African Revenues Service (SARS) levies capital gains tax, subject to certain exclusions, on the disposal by foreign nationals (who are not South African tax residents) of the following assets:
Fixed (immovable) property situated in South Africa.
Any interest or right in immovable property situated in South Africa.
Any asset effectively connected with a South African permanent establishment of the non-resident foreign national.
A non-resident's interest in immovable property includes "equity shares" in a company or other entity (including a vested right in a trust) if:
80% or more of the market value of the interest (shares, rights or vested interest) is attributable to immovable property in South Africa.
With a company or other entity (excluding a trust), the non-resident directly or indirectly holds at least 20% of the equity shares, ownership or right to ownership of that other entity.
Capital gains are taxed at a maximum rate of:
16.4% for natural persons (13.65% before 1 March 2016).
22.4% for companies (18.65% before 1 March 2016).
32.8% for trusts (27.31% before 1 March 2016).
A provisional withholding tax is levied on behalf of non-resident sellers of immovable property in South Africa. The withholding tax is an advance payment that must be set off against the normal tax liability of the non-residents. The withholding tax is:
5% for natural persons.
7.5% for companies.
10% for trusts.
Immovable property held for trading stock purposes forms part of the gross income of a non-resident and is taxed at different rates (see Question 6).
Subject to applicable double taxation treaties (DTAs), non-residents are only subject to tax in South Africa on income that is from a South African source. This includes income received from interest, rental, royalties or from business carried on in South Africa.
Income tax rates apply to residents and non-residents alike and are levied at a maximum of 41% for natural persons and trusts (40% before 1 March 2015) and 28% for companies.
A withholding tax rate of 15% is levied on royalties, interest, dividends and fees payable to entertainers and sportspersons.
Inheritance tax and lifetime gifts
Currently, there is no inheritance tax. However, there are alternative taxes and gifts taxes that are applicable.
Estate duty is levied on the net estate of every person on their death.
For persons ordinarily resident in South Africa, their estate consists of all property and deemed property (that is assurance policies or accruals under a matrimonial property regime) of that person at the date of his death.
The estate of persons not ordinarily resident in South Africa only includes their South African property.
Donations tax is payable on the value of any property disposed of under any donation made by a South African resident. Non-residents are not subject to donations tax.
A donation is defined in local legislation as any gratuitous disposal of property or any gratuitous waiver or renunciation of a right. However, donations tax is payable by the donor if the donor fails to pay the tax within the prescribed period, the donor and donee become jointly and severally liable for the tax.
Capital Gains Tax
Death is a deemed disposal for capital gains tax purposes and a person is regarded as having disposed of all his assets on the date of his death at a value equal to the value of his estate. For residents this applies to all their assets wherever situated and for non-residents it only applies for certain assets (mainly immovable property) (see Question 5). Capital gains tax is levied in addition to estate duty.
Estate duty is levied at a rate of 20% on the property of residents and the South African property of non-residents.
Donations tax is also levied at a rate of 20% of the value of the asset or funds donated.
For rates for capital gains tax, see Question 5.
Tax free allowance
Estate duty. A primary abatement of ZAR3.5 million is allowed for all estates. Where the deceased was the spouse of a previously deceased person then the abatement is doubled to ZAR7 million reduced by the portion of the abatement previously claimed.
Donations tax. The first ZAR100,000 of the property donated by a natural person in a tax year is exempt from donations tax. For persons other than natural persons, the exempt donations are limited to casual gifts not exceeding ZAR10,000 per tax year.
Capital gains tax. An exclusion of ZAR40,000 or less for natural persons per year for capital gain is applicable. In the year of death, the exclusion is increased to ZAR300,000. For a natural person's primary residence, the first ZAR2 million of the gain or loss is excluded, and where the property is sold for ZAR2 million or less, no capital gains tax is levied.
Donations between spouses and South African group companies and donations to certain public benefit organisations are exempt from donations tax. Most personal use assets, retirement benefits and payments in respect of original long-term insurance policies do not trigger a disposal for capital gains tax purposes.
Techniques to reduce liability
The transfer of assets during a person's lifetime can potentially reduce the value of his estate and, therefore, the exposure to capital gains tax and estate duty:
Assets donated between spouses do not attract donations tax or capital gains tax. Therefore, a reorganisation of assets can be performed to reduce a spouse's estate. Bequests to spouses are also exempt, and the last-dying spouse benefits from the increased portable abatement.
Non-residents are not liable for donations tax and can therefore donate all of their South African assets.
Except for the above, or where exclusions are applicable, if a transfer is effected by a donation or for a value less than the market value, it generally gives rise to taxes at that point (donations tax) and, dependent on the type of assets disposed, also capital gains tax.
If the transfer is effected at market value, the value of the person's estate is not reduced but the value of the future growth of the asset disposed of, as well as the income it yields, falls outside his estate. This generally occurs by selling assets at market value to a discretionary trust on loan account, therefore, pegging the value of the owner's estate and avoiding donations tax. The loan can in turn be reduced systematically by using the balance of the donations tax exemption per year.
Selling assets but retaining a life interest. Assets can be sold and a life interest retained that reduces the value of the total estate, but the benefit is diluted in that the life interest (usufruct) on death constitutes a deemed asset for estate duty. Various methods aimed at lowering this value can be employed, but may be open to challenge from the tax authorities.
Establishing a trust. The method of pegging the value of the estate by transferring assets to a trust during the estate owner's lifetime has been described above. Alternatively, use can be made of the ZAR3.5 million abatement by bequeathing this amount to a testamentary or inter vivos trust and the residue to the spouse. No estate duty is payable at this point and the growth on assets transferred are in the trust, of which the spouse can be a beneficiary.
Estate duty is levied on real estate and other assets in South Africa of the foreign owners that are not ordinarily resident in South Africa. Capital gains tax is also applicable to non-residents that hold real estate on its disposal or in the event of death (see Question 7).
However, donations by non-residents do not attract donations tax.
Taxes on buying real estate and other assets
Purchase and gift taxes
Transfer duty is levied on the value of property acquired, or by which it is enhanced, due to the renunciation of an interest or restriction on the use or disposal of the property. Property includes:
A real right in land.
Shares in a residential property company.
In certain circumstances, a contingent right in a discretionary trust that holds residential property.
Transfer duty is payable by the purchaser at the following rates on transactions that are not subject to VAT:
ZAR0 to ZAR750, 000: 0%.
ZAR750,001 to ZAR1,250,000: at a rate of 3% of the amount above ZAR750,000.
ZAR1,250,001 to ZAR1.75 million: set amount of ZAR15,000 plus 6% of the amount above ZAR1.25 million.
ZAR1,750,001 to ZAR2.25 million: set amount of ZAR45,000 plus 8% of the amount above ZAR1.75 million.
ZAR2,250,001 to ZAR10 million: set amount of ZAR85,000 plus 11% of the amount above ZAR2.25 million.
ZAR10 million and above: set amount of ZAR937,500 plus 13% of the amount above ZAR10 million.
If the seller is VAT registered, the sale may be exempt from transfer duty if certain conditions are met, but is then subject to VAT at a rate of:
0% in certain circumstances.
Securities transfer tax is levied at a rate of 0.25% on the transfer of listed or unlisted securities. Securities consist of shares in companies or membership interests in close corporations.
There is currently no direct wealth taxes apply.
There are no particular tax-advantageous real estate holding structures, but the principles applicable to the levying of estate duty and capital gains tax can be used beneficially.
Estate duty is only levied on the death of a natural person. Therefore, if the ownership of the property is held in another structure such as a company or trust, it would not come into the tax net. The non-resident person must be careful not to be seen to have the power to revoke or vary the provisions of any trust or settlement made by him, or that he has the ability to appropriate or dispose of property for his own or for his estate's benefit.
Capital gains tax is levied where the shareholding of a non-resident in a company is at least 20%. In relation to the market value of the shares, 80% of the value can be attributed to the underlying immovable property in South Africa on its disposal.
Taxes on overseas real estate and other assets
International tax treaties
South Africa is party to multiple double taxation treaties (DTAs) and protocols. There is a wide network of DTAs with African countries as well as with countries outside Africa, including the UK, the US and Canada. South Africa is also a party to estate duty agreements with various countries including Sweden, the UK and the US.
Wills and estate administration
Governing law and formalities
No, it is not essential to make a will. If the estate owner passes away without a will, the statutory intestate succession regime applies. However, if a person does not have a will, this can create practical problems for heirs. For example, if the heir is a minor, his inheritance is held and administered by the Master of the High Court.
Statutory provision is made for wills governed by the laws of other jurisdictions to be accepted locally.
A person must have testamentary capacity to make a will. This requires that the person must be 16 years or older when they make the will and must be mentally capable of appreciating the nature and consequences of their act.
The will must also adhere to the following formalities:
The will must be signed on every page, and at the end, by the testator.
The signature must be made or acknowledged by the testator in the presence of at least two witnesses present at the same time.
The witnesses must sign the will in the presence of each other and of the testator on every page and at the end.
The will can be signed by a person at the testator's direction, in which case all of the above formalities must be adhered to by that person who must also be present simultaneously with the persons above.
Where the will is signed by a person signing at the testator's direction, or by the making of a mark by the testator, a commissioner of oaths must certify that he has satisfactorily identified the testator and that the will signed is the will of the testator. Each page of the will other than the page where the certificate appears must be signed by the commissioner of oaths.
Signing includes initials (but only in relation to the testator) or making of a mark.
These formalities are applicable to every will executed in South Africa irrespective of a person's nationality, residence or domicile. However, wills executed outside of South Africa and in compliance with the formalities of the laws of other jurisdictions relevant to the testator's citizenship, domicile or habitual residence or place of execution, can in certain instances be accepted locally. Remedial statutory provisions further exist to address wills that do not comply with these formalities.
The choice is open to a beneficiary to accept or decline the benefits accruing to him from an estate. When a beneficiary declines the benefits, the consequences are determined in law, and he cannot actively redirect to whom, or where, the benefits should fall.
If the beneficiary declines the benefits awarded to him in a will, the benefits devolve on the substitute beneficiaries named in the will, or if none are specified and the statutory provisions regarding substitution are not applicable, the benefits form part of the residue of the estate and devolve on the beneficiaries entitled to the residue.
The statutory provisions regarding substitution provide that if a beneficiary is a descendant of the testator and renounces his benefit then the descendants of that beneficiary are entitled to the benefit. The exceptions to this rule are:
Where the will directs otherwise (that is, names a substitute beneficiary).
Where the benefit is a specific legacy, the benefit falls into the residue of the estate.
Where the beneficiary is a descendant of a testator and is entitled to a benefit together with the surviving spouse.
In the latter event, if the beneficiary renounces, then the benefit vests in the surviving spouse. Similar rules apply to benefits accruing in an estate to descendants where there is no will.
A redistribution agreement between the beneficiaries, where the benefits due to them are rearranged among themselves, can be entered into in most circumstances.
Validity of foreign wills and foreign grants of probate
Validity of foreign wills
A will that has not been proved in another jurisdiction, and which is lodged with the Master of the High Court, can be accepted notwithstanding its non-compliance with the required formalities (see Question 16), provided that the form complies with the internal law of the state or territory where:
The will was executed.
The testator was, at the time of the execution of the will or at the time of his death either:
habitually resident; or
If it deals with immovable property, it complies with the laws of the state where the property is situated.
If executed on board a vessel or aircraft, it complies with the laws of the state where the vessel or aircraft was registered at the time of execution or was otherwise most closely connected at that time.
A will that has been proved in another jurisdiction can be accepted and registered by the Master of the High Court if a copy certified by a competent public authority in the country or territory where the will is probated is provided. In most cases this is a court certified copy of the will, although a notarised copy will suffice.
Validity of foreign grants of probate
Only a person authorised by the Master of the High Court can deal with assets situated in South Africa. Consequently a foreign grant of probate does not entitle the foreign executor to administer assets situated in South Africa. The Master's authorisation must first be obtained and can take one of three forms:
Issuing letters of executorship.
By signing and resealing the foreign grant of probate.
Either of the above following a lesser formal procedure and accompanied with directions where the deceased was not ordinarily resident and held no property other than movable property in South Africa.
The reseal of the probate is only allowed for certain proclaimed states, as has been determined by the relevant Minister and published in the "Government Gazette". A further restriction also exists in that the probate cannot be resealed in favour of a person that is by law prohibited from liquidating and distributing the estate of any person. The Master can also refuse to sign and seal the probate where the foreign executor has failed to cite a South African address for domicilium purposes, or called for security.
In practice, although the provision exists for a foreign grant of probate to be resealed, it rarely happens as it is the practice of the various Masters of the High Court in South African to insist on a bond of security being filed. A bond of security will not be granted to a non-South African resident. In these circumstances, the simplest approach is for the foreign executor, together with the beneficiaries, to nominate a South African practitioner (in a position to file security) to be appointed as executor.
Death of foreign nationals
If a foreign national dies within South Africa, his estate must be reported to the Master of the High Court (Master's office) if he leaves any property in South Africa or any document that appears to be a will. However, if in the latter scenario it is further determined that the person left no property in South Africa, the Master can release the will lodged with him to a person that lawfully requires it for purposes of administering the estate outside of South Africa.
If the estate must be reported, then it must be determined which Master's office his estate must be reported. For a foreign national that was ordinarily resident in South Africa, the estate must be reported to the Master's office in the jurisdiction where he was ordinarily resident. If not ordinarily resident, application can be made to any Master's office.
Administering the estate
Responsibility for administering
The Executor as appointed by letters of executorship issued by the Master of the High Court, bears the responsibility for administering the estate and is the only person authorised to liquidate and distribute the estate. The appointed executor must comply with all the usual provisions of the Administration of Estates Act and his role encompasses:
Arranging for an advertisement to be published in a local newspaper and the Government Gazette calling on debtors and creditors to lodge their claims with the executor.
Opening a bank account in the name of the estate (any existing accounts in the name of the deceased must be closed).
Obtaining a current valuation of all property (a decision to be made by the heirs whether it is to be sold or transferred to them, subject to the terms of the will).
Valuing all other assets and investments.
Preparing a liquidation and distribution account for submission to the Master of the High Court.
Once this account has been accepted by the Master then a second advertisement must be placed in a local newspaper and Government Gazette calling on interested parties to notify the Master of any objections that they may have to the account.
After the expiry of the statutory notice period (usually 21 days) without any objection having been received, the Executor can then proceed to finalise the estate by paying the heirs and transferring the property (if not sold) to the heirs.
The Executor must take into his custody and control all the property, books and documents immediately after letters of executorship are issued to him. But this does not constitute vesting.
The rights to the property of the estate vests in the heirs once they are entitled to it. Vesting is determined in accordance with the provisions of the will. If the bequest be an outright unconditional bequest, the rights vest on the testator's death.
The beneficiaries' rights take the form of a personal claim for delivery subject to the estate administration procedure and become enforceable once the liquidation and distribution account has been available for inspection for the statutory period and no objections have been lodged.
Establishing title and gathering in assets (including any particular considerations for non-resident executors)?
Establishing title and gathering in assets
The executor is given the authority and bears the responsibility of:
Dealing with the assets of the estate.
Determining the ownership of assets of the deceased and the liabilities.
Liquidating or passing transfer to the heirs of these assets.
Procedure for paying taxes
The executor is the representative taxpayer. In this capacity he must provide any outstanding income tax returns including the last tax return for the period ending on the date of death and is responsible for payment of the tax liability.
Similarly the executor must also provide a return for estate duty and the duty is payable by him in his capacity as executor from the estate. The liability for the duty varies according to the type of asset. However, it is the responsibility of the executor to ensure that the estate duty is paid:
For policy proceeds received by a person other than the executor, the beneficiary is liable.
In respect of any life interest (usufructuary, fiduciary, annuity or like interest), it is the person to whom the benefit accrues on death of the deceased that is liable for the duty.
For all other property it is the estate that is liable for the duty.
Distributing the estate
The executor is responsible for the distribution of the estate, including the payment of creditors and transfer of assets to the heirs. The estate should only be distributed once:
Notice is given that the liquidation and distribution account will be available for inspection.
The account has been available for inspection for the statutory period.
No objections were lodged.
If objections were lodged, they have been withdrawn or resolved.
The value of an asset at the date of death is important for estate duty and capital gains tax purposes. Other dates, such as the date of sale of assets realised, are also relevant. Specific rules are set out in the Estate Duty Act governing the valuation of assets, as well as in the Eighth Schedule to the Income Tax Act governing the determination of proceeds and the base costs of assets.
Assets situated in other jurisdictions may fall within the tax net for certain taxes (see Question 7), and will consequently need to be valued.
Interest on estate duty becomes payable at the earlier of:
30 days from the date of payment on the assessment.
One year from the date of death.
A beneficiary can challenge the will on the following grounds:
Non-compliance with the prescribed formalities.
Lack of testamentary capacity.
An application to the High Court is necessary. The burden of proof rests on the person instituting the court process to prove his case on a balance of probabilities.
A beneficiary, as well as any person having an interest in the estate, can challenge the appointment of the executor on certain grounds by filing a written objection to the nomination of that person as executor with the Master of the High Court, who can then refuse to issue the letters of executorship until either the:
Objection is withdrawn.
Validity of the nomination has been determined by a competent court.
Any person having an interest in the estate (such as a beneficiary or creditor) can also lodge an objection with the Master against the liquidation and distribution account, if they are of the view that they are prejudiced (their claim was not allowed) and the award to them is incorrect.
For administrators (known as trustees), any person with an interest in the trust property can apply to court for the removal of a trustee on certain grounds.
The principle of freedom of testation is enshrined in the law and, subject to certain common law and statutory limitations, a testator can independently determine the succession of his assets in his will.
No forced heirship regime is applicable.
The limitations referred to above (see Question 23) can allow some of the testator's next-of-kin to lay claim to a greater share than what had been bequeathed to them. The testator's minor dependent children have under common law a maintenance claim against their parent's estate, and a surviving spouse can also make a claim for maintenance under the Maintenance of Surviving Spouses Act No. 27 of 1990.
Where a testator dies without a will, or the will cannot be effected, the rules of intestate succession apply, meaning the beneficiaries are ascertained based on the proximity of their familial ties to the deceased.
Forced heirship regimes
Real estate or other assets owned by foreign nationals
A distinction must be made between where the deceased foreign national dies with a will or dies intestate.
If the foreign national dies leaving a valid will then the will determines who receives the assets under:
Formalities prescribed for wills in South Africa.
The internal law of certain countries relating to the deceased or assets (see Question 17 ).
If the foreign national dies intestate, then for real estate, the succession laws applicable to it are the country where it is situated, which means the intestate succession regime is applied. For movables, the intestate succession rules of the country where the deceased was domiciled at the time of his death apply.
The application of the doctrine of renvoi in succession law remains a grey area, but the introduction of legislation has limited its operation. For immovable property disposed of in terms of a will, legislation now provides that such a will is not invalid due to its form if it complies with the internal law of the state or territory where the property is situated, but excluding the rules of the international private law of that state or territory. For intestate matters, the general principle holds that in relation to real estate, the lex situs (law of the country where it is situated) governs the asset.
The Intestate Succession Act No. 81 of 1987 governs the whole or any part of the estate that is subject to intestacy. It provides for the intestate estate to devolve as follows:
On the spouse if there are no surviving descendants.
On the descendants if there is no surviving spouse.
If the deceased is survived by a spouse as well as descendants, then the spouse inherits the larger of a child's share of the intestate estate or the amount prescribed by the Minister of Justice. This amount has been increased from 24 November 2014 to ZAR250,000 (previously ZAR125,000). The descendants inherit the balance of the intestate's estate.
If the deceased is not survived by a spouse or descendants then the intestate's estate devolves on his parents in equal shares, failing them, their descendants, and failing such descendants, on the blood relatives related to the deceased in the nearest degree.
Type of trust and taxation
Types of trust. Different types of trusts can be distinguished by having regard to a specific feature of the trust. For example:
The manner in which they are formed:
inter vivos trusts that are created during a person's lifetime; or
testamentary trusts that are created on the death of a person mostly in terms of a last will and testament.
The rights the beneficiaries hold:
vesting or vested trusts where the capital or income vests in the beneficiaries;
discretionary trusts where the trustees in their discretion award the capital or income to beneficiaries ad hoc; or
bewind trusts where the ownership of the assets vests in the beneficiary but the control and administration resorts with the trustees.
The object of the trust:
charitable trusts; or
A trust can exhibit more than one of these features for example:
an inter vivos trust can be a family trust that is mostly discretionary; or
a business trust that is usually a vested trust.
Taxation. Trusts are taxed at a flat rate of 41% on income and in relation to capital gains at an effective rate of 32.8%.
However, if the income or capital gains of a trust are vested in a beneficiary during the tax year that the income or gains arise, then the beneficiary, and not the trust, is taxed on the income or capital gains. That course of action is usually followed if the beneficiary has a substantially lower rate of tax than the trust.
In certain circumstances, the income or capital gains of a trust can be taxed in the hands of the settlor.
Residence of trusts
A trust is resident for tax purposes if it is formed in South Africa or has its place of effective management in South Africa.
The proviso regarding double taxation agreements is applicable so that a trust that is deemed to be exclusively resident of another country for the purposes of such an agreement is not regarded as resident of South Africa.
The tax residence of a trust for South African tax purposes is based on whether it is formed in South Africa or has its place of effective management in South Africa. Therefore, the relocation of trustees can have an impact on the place of effective management of the trust and its tax residence.
If after the trustees take up residence in South Africa, the place of effective management of the trust is regarded as South Africa, the trust commences its tax residence and is liable for taxation on its income and capital gains worldwide (unless a double taxation agreement deems it to be exclusively resident of another country). The trust is also regarded as having acquired all its assets at market value on the date it becomes resident.
If on the departure of the trustees, the trust ceases its residence in South Africa, it is deemed to have disposed of all its assets at market value immediately before ceasing residence, except for real estate in South Africa and the assets listed above (see Question 5).
Does the law provide specifically for the creation of non-charitable purpose trusts?
Does the law restrict the perpetuity period within which gifts in trusts must vest, or the period during which income may be accumulated?
Can the trust document restrict the beneficiaries' rights to information about the trust?
Purpose trusts can be created for an impersonal object that may not necessarily be a charitable object.
Perpetuities and accumulations
A trust can exist for an indefinite period as the rule against perpetuities is not applicable in South Africa.
Beneficiaries' rights to information
The content of a trust deed is not prescribed by law and there are no exact prohibitions set in law, other than the general principles that the provisions should not be unlawful or offend public policy.
The beneficiaries have at common law a right to demand an account and information regarding the investment of the assets relating to the share of the beneficiary. While a trust deed is a contractual agreement and its contents based on the idea that parties enjoy contractual freedom, a provision to restrict the beneficiaries and deprive them of these rights could be challengeable.
Under the Trust Property Control Act, any interested person can apply for a certified copy of any document (such as the trust deed or amendment deed) filed with the Master relating to the trust property. The Master can also call on the trustees to furnish him with any account or document or to answer any questions relating to the administration or disposal of trust property. Information can also be requested under the Promotion of Access to Information Act.
While a trust is not a separate legal entity, the assets of the trust do not form part of the settlor or beneficiary's estate for purposes of matrimonial regime claims.
The courts adhere to this principle except where the trust form is abused in that there is no real separation between the control and enjoyment of the trust property.
For divorce proceedings, where such a principle is offended, recent court decisions are authority that the court can include in the determination of the estate of a spouse those assets vesting in the trust that will impact on the award to be made.
Generally assets vesting in the trust are shielded against the creditors of a settlor or beneficiary.
There are two notable exceptions:
The insolvency rules provide for certain transactions made within a particular time period of the insolvency of the person, to be set aside by the court.
If the trust form has been abused, the protection offered by the trust for these assets may be lost on a court's finding to this effect.
The term charity is not defined. An organisation that is established for a public purpose and of which the income and property are not distributable to its members or office bearers other than for reasonable compensation for services, can apply for registration as a non-profit organisation. An organisation can be a trust, company or other association of persons. A non-profit organisation qualifies on registration for these benefits and allowances as prescribed by the Minister of Social Development.
Specific provision is also made for a company to be established as a non-profit company where:
It is incorporated for public benefit or other object as statutorily set out, and the income.
Property of the company is not distributable to its incorporators, members, directors, offices or persons related to them, except to the extent permitted by law.
For tax purposes, to benefit from a more preferential and advantageous tax dispensation an entity must apply and be approved as a "public benefit organisation" by the Commissioner of the South African Revenue Service (SARS), and ensure that it meets and continues to meet the requirements prescribed for such an organisation. Its founding document must also contain such provisions as statutorily required. A public benefit organisation is defined as:
A non-profit company, trust or association of persons incorporated, formed or established in South Africa, or a branch within South Africa of a company, association or trust established in another country that is exempt from tax on income in that country.
Its sole or principal object must be to carry on one or more public benefit activities as defined, which are carried on in a non-profit manner and with a philanthropic or altruistic intent and is not intended to promote the self-interest of any fiduciary or employee other than by way of reasonable remuneration.
Its activities must be for the benefit of, or be widely accessible to the general public at large, as well as any sector of it, other than a small and exclusive group.
The Income Tax Act sets out a list of activities that an entity must be engaged in to qualify for the advantageous tax dispensation.
A charitable entity can be set up as a non-profit company, trust or association of persons. The choice of the specific structure from among these entities does not impact on the entity's ability to apply to be registered as a public benefit organisation and enjoy the beneficial tax treatment given to such organisations.
A directorate for non-profit organisations was established and forms part of the Department of Social Development. Registration as a non-profit organisation is voluntary. A register of non-profit organisation is kept by the directorate and is accessible online. A registered non-profit organisation must comply with the prescribed reporting requirements and provide information as requested by the directorate, who monitors these organisations and can issue compliance notices as well as cancel the registration of a non-profit organisation.
The Commissioner of the South African Revenue Service (SARS) acting through its Tax Exemption Unit can, on application, approve qualifying entities as a public benefit organisation for tax purposes. A list for approved public benefit organisations is held by SARS and accessible online.
There are no specific benefits when the organisation is set up. However, after approval as a public benefit organisation for tax purposes, taxpayers who make bona fide donations to an organisation that is approved under section 18A of the Income Tax Act can deduct the value of the donation from their taxable income, subject to certain limits.
Exemptions on the transfer of property or money to a public benefit organisation are also available for various taxes, including but not limited to:
Capital gains tax.
Securities transfer tax.
A person that makes a donation or bequeaths a benefit in his will to an approved public benefit organisation is not taxed on it for donations tax, and for bequests, the value of the bequest can be deducted from the dutiable value of the estate.
Under the definition of a public benefit organisation (see Question 35), the branch in South Africa of an organisation established outside South Africa can be approved as a public benefit organisation provided it is exempt from income tax in its country of establishment.
Such an organisation cannot qualify for approval under section 18A of the Income Tax Act and, therefore, donations to it are not tax deductible in South Africa from the taxpayer's taxable income.
However, further exemptions are available to the organisation if it has been approved as a public benefit organisation.
Ownership and familial relationships
Co-ownership is permitted and allows the ownership of an asset at the same time by more than one person in undivided shares. The shares do not need to be equal.
The undivided share held by a person constitutes an asset of his respective estate for succession and estate administration purposes. Any income derived from the asset or the capital gains arising from the disposal of the asset is taxable in his hands.
An exception to this general rule is where the co-ownership is the result of a marriage in community of property, where for estate administration purposes the joint estate of both spouses is dealt with, although only the deceased's respective half of the joint estate is subject to succession at that point. For taxes, spouses married in community of property are taxed equally on the investment income (interest, rentals and dividends) derived from the joint estate's assets, but trade income (salary or business profits) is taxable in the hands of the spouse that earns it.
The patrimonial consequences of a marriage governed by the law allow for three types of matrimonial regimes:
In community of property: this applies by default and the result of the marriage is that a joint estate is formed consisting of each spouse's respective assets and liabilities before marriage as well as all acquired during their marriage.
Out of community of property with accrual: separate estates are retained by the spouses on, and for the duration of, their marriage, but the growth of their estates during the marriage is shared.
Out of community of property without the accrual: separate estates.
The latter two regimes only apply where an antenuptial contract is concluded before the marriage and registered with the Registrar of Deeds.
The courts can recognise and apply the patrimonial consequences of a marriage governed by the law of a foreign state if that law is determined to be applicable in terms of the rules of South African private international law.
Cohabitees/ civil partners
South African law has been progressive in its expansion of the concept of marriage (the traditional concept of one man and one woman as later governed under the Marriage Act) and now allows for similar relationships to be recognised, that is:
Same-sex and heterosexual partners can enter into a union under the Civil Union Act.
Persons can enter into marriages in terms of the customary laws that can also be polygamous in nature, and is now recognised by the Recognition of Customary Marriages Act.
Whilst a Domestic Partnership Bill allowing for the recognition of the relationship of cohabitees (permanent life partners), has been tabled, it has not been promulgated.
Consequently a cohabitee or domestic partner does not have claim to their partner's assets per se, and for succession, cannot claim a benefit as a spouse under the Intestate Succession Act or Maintenance of Surviving Spouses Act. Case law exists that allows for same-sex life partners to be regarded as such under these Acts, but were decided before the promulgation of the Civil Union Act, which now allows for these partners to enter into a recognised union.
Same-sex couples where both parties are at least 18 years of age can enter into a civil union in terms of the Civil Union Act. All the consequences of a marriage will be accorded to this union, and, therefore, they are treated the same as heterosexual married spouses for tax and succession purposes.
The term marriage is not statutorily defined. At common law, it was regarded as the legally recognised union of one man and one woman that agree to live together as spouses to the exclusion of all others until the marriage is dissolved by death or as otherwise provided by law.
Developments have taken place to give recognition to same-sex relationships, customary marriages and certain religious marriages through the promulgation of legislation (see Question 39), as set out below as well as case law:
The Civil Union Act defines a civil union as the voluntary union of two persons that are both at least 18 years of age, which is solemnised and registered by way of either a marriage or a civil partnership, in accordance with the procedures prescribed in that Act, to the exclusion of all others during its duration. Therefore, it accommodates both same-sex and heterosexual couples in formalising their relationship. The legal consequences of a marriage contemplated in the Marriage Act, is applicable to such unions.
A customary marriage is valid in terms of the Recognition of Customary Marriages Act, where the spouses:
are above the age of 18 years;
consent to marry each other under customary law; and
negotiate and enter or celebrate the marriage in accordance with customary law.
The marriage must be registered. Since certain customary laws allow for polygyny, such marriages conducted in terms of the Act are recognised.
A marriage can, in terms of the Marriage Act, be officiated by a marriage officer designated to solemnise marriages according to Christian, Jewish or Islamic rites or the rites of any Indian religion.
The Divorce Act does not define the term divorce. Under the law it is understood to refer to the dissolution of a marriage on a court issuing a decree of divorce, including the dissolution of a customary marriage or civil union.
The term adopted is not defined in succession laws. The Children's Act defines an adopted child as a child adopted by a person in terms of any law, while an adopted parent is similarly defined as a person who has adopted a child in terms of any law. The Act further provides that for adoption, a child is regarded as adopted if the child has been placed in the permanent care of a person in terms of a court order, which in essence has the effect that:
The adopted child is regarded as a child of the adopted parent.
The adopted parent is the parent of the child, having all parental rights and responsibilities in respect of the child.
Succession laws, the Wills Act and Intestate Succession Act all contain provisions where the adopted child is regarded as born of, or a descendant of, his adopted parent, and not as the child or descendant of his natural parents (except where the natural parent is also the adopted parent).
The term legitimate is not defined, but generally speaking denotes a person whose parents were lawfully married to each other at the time of his birth, or married each other after birth (legitimised). However, it is no longer an appropriate term in light of our constitutional dispensation and Bill of Rights. The Children's Act shifted the focus from the status of the child to the status of the parents, and refers to a child born of married parents or a child born of unmarried parents. A child born of married parents denotes a child whose parents were either married at:
The time of his conception or birth.
A time between conception and birth.
There is a deeming provision where the parents of a child that marry each other after the child's birth must for all purposes be regarded as a child born of parents that were married at the time of the child's birth. The term marriage for purposes of the Act is broad and refers to a marriage recognised in terms of the law or customary law, or which is concluded in accordance with a system of religious law subject to specified procedures. Civil unions are also included.
For the purposes of succession law, the Wills Act specifically provides for the fact that a person that was born out of wedlock must be ignored in determining his relationship to the testator or another person for purposes of the will. Similarly the illegitimacy of a person does not impact on his capacity to inherit as a blood relation from another person.
A civil union partner refers to a spouse in a marriage or a partner in a civil partnership, concluded in terms of the Civil Union Act No. 17 of 2006. Such a union enjoys the same legal consequences as a marriage.
A person is regarded as a minor in terms of South African law until he attains the age of 18 years. Where the heir is a minor, immovable property bequeathed to him must be registered in his name.
Movable property and moneys due to a minor beneficiary in an estate must be delivered to the minor's natural guardian on condition the guardian has provided security to the Master's satisfaction. This is subject to the contents of the will that can direct otherwise, such as removing the furnishing of security, or directing that the assets be held in trust. Where the guardian fails to give security within two months of the estate becoming distributable, the executor must pay the funds over to the guardian's fund.
A minor's capacity to deal with assets is restricted in the following ways:
Between zero to seven years they are regarded as having no capacity and their guardians must act on their behalf.
Between seven to 18 years they are regarded as having limited capacity and can deal with assets with the assistance of their guardians.
However, immovable property cannot be disposed or mortgaged by the guardian unless he is authorised by the Master (if the value of the property or mortgage is below ZAR100,000) or by the court (where the value of the property or mortgage exceeds ZAR100,000).
Capacity and power of attorney
A power of attorney made under the law of another jurisdiction can be recognised in South Africa provided it is duly authenticated by the appropriate person or authority. However, an enduring power of attorney is only capable of being acted on while the principal granting the power of attorney has capacity.
Where a person loses capacity, the common law supplemented by Rule 57 of the Uniform Rules of Court makes provision for the appointment of a curator persona and a curator bonis to look after the person and his estate respectively. This is a substantive High Court application that involves, as a preliminary step, the appointment of a curator ad litem for the purpose of the legal proceedings. After this, on the curator ad litem's support and the Master of the High Court's support, a curator persona and curator bonis can be appointed.
A less formal procedure is also available where an application can be made to the Master for the appointment of an administrator.
The South African Law Commission has made substantive recommendations that include a draft bill and a pro forma for an Enduring Power of Attorney of kind, but it has not been implemented and currently remains a hiatus in the law.
Proposals for reform
South African Revenue Service
Description. The official website of the South African Revenue Service. The website is frequently updated.
Master of the High Court
Description. The official website for the Master of the High Court. It is periodically reviewed.
Non-Profit Organisation Register
Description. This is the website for the registry maintained by the directorate of non-profit organisations forming part of the Department of Social Development.
Robyn de Kock, Partner
Professional qualifications. South Africa, Attorney, 2001
Areas of practice. Corporate tax; international tax; tax litigation; dispute management; tax planning and structuring (local and cross border); exchange control; trust law; insurance; FSB regulations.
Non-professional qualifications. B Comm LLB; LLM Tax
Languages. English, Afrikaans
Professional associations/memberships. Member of the Society of Trust and Estate Practitioners.
Leigh Jepson, Partner
Professional qualifications. South Africa, Attorney, 1998
Areas of practice. Estate planning; drafting of wills; administration of deceased estates.
Non-professional qualifications. BA LLB