How to stop additional tax
In 2000 chartered accountant John Frith successfully challenged the South African Revenue Service (Sars) on a method it used to calculate estate duty.
However, despite the court ruling in his favour many estates still pay tax on tax or a higher effective tax rate than necessary as the related law has not been changed.In this Q&A Frith tells MoneywebTax readers how to avoid additional tax...
MoneywebTax: How do you pay additional tax?
John Frith: If you were given a gift of R800 000 from your mother or father, the tax would be R160 000 (20%), but if you received R800 000 from their deceased estate the tax would be R200 000 - R40 000 more tax even though the tax rate is also 20%.This R40 000 applies for each and every additional R1m over the threshold.If the gift had been R8m the additional tax would have been R400 000.
MoneywebTax: What is the only legal way to avoid this additional tax?
John Frith: Through the Family & Charity will structure.
MoneywebTax: How does it work?
John Frith:
- Gives assets of a specific value to your nominated persons or trusts.
- Leaves the remaining assets to a combination of spouse and/or charities. The remaining assets are those assets left after the allocation of specific bequests, and the payment of costs and estate duty. If specific bequests are properly determined, little remains.
- The assets that would have been used to pay the additional tax are paid to your chosen beneficiaries, with a small portion to a charity of your choice.
MoneywebTax: Who is covered in the will?
John Frith:
- Every eventuality regarding order of death of spouses and possibility of simultaneous death.
- All increases or decreases in net assets ensuring maximum to you nominated beneficiaries.
- Every eventuality of tax rate and initial allowance changes.
- Any possibility of an under age beneficiary.
- All deemed assets (life insurance, usufructs, foreign assets etc) if disclosed in the initial set up.
- No law changes can prejudice this will.
MoneywebTax: What are the disadvantages?
John Frith:
- Because any beneficiaries name should be spelt out in full any change will result in a change to the distribution clause.
- If you wish to change an amount or proportion to a beneficiary the distribution clause must be changed.
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Comments
Sorry what is the article trying to say??? Very confusing
by what the heck on November 07 2007, 06:18
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Dont write and smoke dube
by PJ on November 16 2007, 11:15
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Interesting comment. Perhaps you are part of the Estate Planning industry that is ignoring this issue
by JF on November 20 2007, 00:50
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If your will doesn't have only have your spouse and/or charities as your residiary heir and your assets including life insurance exceed the threshold your estate will pay 25% additional estate duty.
by JF on November 20 2007, 00:48
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Very badly written article. Did you do it on your way to work?
by Say what? on November 08 2007, 01:58
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If your would like the original article email me at john@coep.co.za
by JF on November 20 2007, 00:55
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