What are the valid deductions that can be made before estate tax is payable?

There are various valid deductions before estate tax is payable. The list below is not exhaustive and include the following:

• his or her medical and funeral expenses
• the cost of completion of the estate (for example executor and Master’s fees)
• outstanding taxes
• outstanding debt by the deceased

A bequest to a surviving spouse is one of the more obvious deductions.

All such bequests, including policies that are paid to him or her out of the estate, can be deducted from the total estate, before estate tax is calculated. If there is any requirement set for a surviving spouse, for example, to pay a sum of money to someone, the deduction is reduced by that value.

The definition of “spouse” includes parties who are in a relationship ( this includes same sex relationships.) and which were intended to be permanent.

Bequests to such people are also deductible for estate taxes. Inheritance tax of 20% to 25% is ultimately only payable on the net estate, after accounting for all allowable deductions, minus an individual exemption of R3.5 million.

This exemption is applicable to every person, and can also be carried over to the surviving spouse.

If you have bequeathed all your assets to your spouse, you also bequeath your individual exemption to that person. The death of that surviving spouse means that their exemption of R3,5 million, as well as that of the exemption that they inherited, will be taken into account as estate deductions.

An estate valued up to R7 million will thus be free of estate tax. This is the limit, and the exemption may not accumulate with successive marriages. The transfer of the exemption is limited to one deceased spouse, even if the deceased was married more than once or was in more than one qualifying relationship.

The executor may choose which previous spousal exemption to apply. If, for example, a woman already inherited a previous husband’s assets, she will receive the full exemption of R3.5 million and her own estate will then have the total R7 million exemption.

Ensuring you’re informed about these provisions can help in efficient estate planning, securing the legacy you intend for your loved ones.