29February2012
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Estate duty abatement portable between spouses - Explanatory note from SARS

A welcome amendment to the Estate Duty Act in 2010 gives spouses access to each other's estate duty deductions. Before the amendment , if the first dying spouse left his or her entire estate to the survivor, the R3.5 million would be lost. The Act now provides that the amount of R3.5 million can be transferred to the estate of the surviving spouse.

Hereafter the explanatory note from SARS:

Dutiable amount of an estate Section 4A of the estate duty Act

  1. Subject to subsections (2) and (3), the dutiable amount of the  estate of any person shall be determined by deducting from the net value of  that estate, as determined in accordance with section 4, an amount of  R3,5 million.
  2. Where a person was the spouse at the time of death of one or more  previously deceased persons, the dutiable amount of the estate of that  person shall be determined by deducting from the net value of that estate, as determined in accordance with section 4, an amount equal to the amount specified in subsection (1) multiplied by two; and reduced by the amount deducted from the net value of the estate of any one of the previously deceased persons in accordance with this section.
  3. Where a person was one of the spouses at the time of death of a  previously deceased person, the dutiable amount of the estate of that person  shall be determined by deducting from the net value of that estate, as  determined in accordance with section 4, an amount equal to the sum of the amount specified in subsection (1); and the amount specified in subsection (1) divided by the number of  spouses, reduced by an amount which is determined by dividing the  amount deducted, in accordance with subsection (1), from the net  value of the estate of the previously deceased person by the number of  spouses of that previously deceased person.
  4. The amount contemplated in subsection (2)(b) or (3)(b) shall not exceed the amount specified in subsection (1).
  5. Subsections (2) and (3) shall not apply unless the executor of the estate of that person submits, at the time and in the manner and form prescribed by the Commissioner, to the Commissioner a copy of a return submitted to the Commissioner in terms of section 7 in respect of the estate of the previously deceased person.’’

After determining the “net value of an estate (property plus deemed property less liabilities and deductions in terms of section 4 of the Act) a fixed amount in terms of section 4A is deducted from the net value of the estate to establish the “dutiable amount of the estate” on which 20% estate duty is levied. As from 1 March 2007 this amount is R3 500 000.

In terms of the amendment to section 4A, the deduction is increased if the deceased was the spouse of one (or more) previously deceased persons. In such cases the dutiable amount of that estate is determined by subtracting the R3,5 million multiplied by two from the “net value of the estate”. This amount (R7 000 000) must, however, be reduced by the value of the deduction which was deducted from the net value of the predeceased spouse in terms of the section 4A deduction as applied at the date of death of the predeceased spouse. In cases where there were more than one previously deceased spouse, the executor has the choice to use the amount so deducted in any one of the predeceased spouse’s estates.

Example 1 – Section 4A(2)

Phillip died on 5 January 2010.

He was married to Jane who died on 15/8/2005 (during that time the section 4A  deduction was R1 500 000). The net value of her estate was R650 000. In reducing the dutiable amount in her estate to R Nil, R650 000 of the section 4A deduction was used.

On 7/10/2007 Phillip was married to Dawn who died on 28/12/2008 in a car accident. The net value of her estate amounted to R2 500 000. The section 4A deduction on date of her death was R3 500 000; R2 500 000 of the section 4A deduction was therefore used in her estate.

The section 4A deduction in Phillip’s estate will be:

R3 500 000 x 2 = R7 000 000 (4A(2)(a))

Less: R650 000 or R2 500 000 (4A(2)(b))

The executor in Phillip’s estate has the choice to reduce the R7 000 000 (section

4A(2) deduction) either by R650 000 (4A deduction used in Jane’s estate) or R2 500 000 (used in Dawn’s estate) to determine the deduction in terms of section  4A(2) in Phillip’s estate.

In order to use the deduction in terms of section 4A(2), the following requirements

must be complied with:

Example 2 – Section 4A(3)

John had 3 wives in terms of a customary marriage. He died prior to 1/1/2010 and his estate used R500 000 of the section 4A deduction to reduce the dutiable amount of the estate to R Nil. His wife, Sarah, died on 5/1/2010 and left an estate of R5 million.

The section 4A deduction in her estate will be:

The sum of section 4A(1) + [4A(3)(a) less 4A(3)(b)]

R3 500 000 + [R3 500 000 ÷ 3 less R500 000 ÷ 3]

R3 500 000 + R1 166 667 less R166 667

R3 500 000 + R1 000 000

R4 000 000

Example 3 – Section 4A(3)

Cobus had 5 wives, he died prior to 2010 and his estate used R3 million of the section 4A deduction in his estate. One of his wives, Susan, died on 8 January 2010 and left a net estate of R7 000 000

Section 4A deduction in her estate:

The sum of section 4A(1) + [4A(3)(a) less 4A(3)(b)]

R3 500 000 + [3 500 000 ÷ 5 less 3 000 000 ÷ 5]

R3 500 000 + [700 000 – 600 000]

R3 500 000 + R100 000 =R3 600 000

To be enable to use the deduction in terms of section 4A(3), the executor must comply with the following requirements (same as section 4A(2)):

As the amendments inserted in section 4A (subsection (2) to (5)) only deal with the cases where “spouses” are involved the estates of persons who died on or after 1 January 2010 and who were not involved in such a relationship, are still only entitled to a deduction in terms of section 4A amounting to R3 500 000.

The above-mentioned amendments came into operation on 1 January 2010 and apply in respect of the estate of a person who dies on or after that date. The effective date applies to the date of death of the second dying spouse.

(Ms) CJ Marx

For COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE