03 Jun Leaving South Africa? Options for inheritance and trust transfer

Leaving South Africa? Options for inheritance and trust transfer

With all the changes to exchange control of late, many South Africans who live abroad or are planning on emigrating are concerned for their funds left in South Africa.

It’s a legitimate concern – you’re starting a new life abroad, so it makes sense that you would want access to your hard-earned money to fund your new life. With the impact of Covid, there is also a greater incidence of deaths and subsequent unwinding of estates. This means many people suddenly need to figure out how to access the proceeds of inheritance and trust money, all the while dealing with their grief.

So what are the ins- and outs- of inheritance transfer? How do you access these funds without falling foul of the law?

Rand Rescue takes a look.

Understanding the Taxation Laws Amendment Act 23 of 2020

For the purpose of this article we’ll assume you’ve not submitted any prior applications for fund transfer. This means you first need to understand how amendments to tax legislation affect the handling of cross-border finance.

Before March 2021, individuals living abroad had to apply for financial emigration if they were to legally encash certain funds and transfer them abroad. Though the process didn’t rid South Africans of their citizenship, it did formalise their status as non-residents for tax purposes.

The new legislation does away with residence-based taxation, which means all South Africans will see their income and transfer treated similarly – irrespective of whether they live locally or abroad.

Previously, a little-known 5-year rule stated that South Africans could be deemed non-residents for tax purposes as long as they retained that status for a minimum of five years before returning to SA. For many persons this process, although administratively protracted, worked quite seamlessly. Many people were hardly aware that they could lose their non-resident status by simply visiting South Africa for prolonged periods post-emigration. This is mostly because the SARB had focused mainly on offenders earning above a certain cap, and the monitoring of international financial transactions had not yet been streamlined worldwide.

South African tax residency explained

Before the new legislation, tax residency was determined by one of two different tests (or a combination of the two) – the ordinarily resident and physical presence tests.

The new legislation does away with these tests and novel legislation in a nutshell means that you’re deemed a South African taxpayer whether locally or abroad. For emigrants, a three-year period outside SA borders is now required to deem you a non-taxpayer.

Luckily trusts and inheritance transfers aren’t deemed retirement funds, and are therefore not generally restricted for transfer, but there are still many tricky administrative considerations.

Confirming your Tax Compliance Status (TCS)

The new legislation requires that individuals obtain a Tax Compliance Status (TCS) document to confirm that they’re no longer tax residents. A SARS TCR01 form is used to confirm this and allow authorised dealers (such as banks) to transfer funds abroad.

The short of it:

• South Africans can still transfer between R1 (without a Tax Compliance Certificate) and R10 million per annum (with a Tax Compliance Certificate) offshore under their discretionary and foreign investment allowances, whether they live in SA or abroad
• South Africans cannot transfer the proceeds of retirement annuities or preservation funds after their single allowance within three years of moving abroad
• Individuals who wish to transfer more than R10 million offshore will have to go through a risk-assessment process
• Most asset transfers for those deemed non tax residents will be transferable after the three-consecutive-year hold.

Discerning between trusts and inheritance

When it comes to trusts, it can be quite tricky. Individual rules will determine what your share of funds will be, what monies are payable to you and whether you’re allowed to remain on as trustee or need to resign. Understanding trust rules is not necessarily straight-forward, so we advise you to contact Rand Rescue to determine the rules and relevant options available for your trust transfers.

When it comes to inheritance, there are 4 sections of legislation to consider for tax purposes:

• Income Tax of the deceased (personal tax)
• Capital Gains tax
• Estate duty tax
• Donations tax

These are taxes which become payable on the deceased’s estate and are levied before any fees can be transferred to beneficiaries’ accounts. Death serves as an immediate trigger to SARS and the SARB that the deceased person has disposed of their assets since a transfer or ownership needs to occur – the assets cannot remain in limbo This could sometimes trigger Capital Gains tax since market value of assets pre- and post-death could differ.

Estate Duty tax is the most well-known legislation applicable in the event of death, and most broadly applied. This tax is generally payable if the net value of the estate exceeds R3,5 million (20% of the first R30 million and 25% thereafter). Estate Duty taxation also allows for deductions in terms of liabilities, public benefit bequests, accruing property to surviving spouses and so on. Retirement monies are not classified as property for the sake of Estate Duty tax and therefore not liable for taxation in this instance.

The classification of insurance differs. Proceeds of life insurance policies are generally viewed as property under and estate in terms of Section 3(3)(a) of the Estate Duty Act, unless:

• a duly registered contract for estate duty purposes states otherwise
• the policy was acquired by a partner or shareholder in which the deceased held an interest or shares at the time of death
• the deceased had not paid for the policies
• the policy was not affected by the deceased
• the policy will not be used to the benefit of dependants, relatives or companies dependent on the deceased
• Duties are also excluded when all assets are bequeathed to a surviving spouse with a portable spousal abatement applicable.

Without a proper grasp of the processes, requirements and legislation which govern individual estates and respective trust, individuals face an maze of administrative red tape which could see them pay unnecessary penalties, significantly stall the process and may see them inadvertently follow the wrong course of action.

Talk to Rand Rescue about your options

Rand Rescue is the preferred partner for cross-border financial services to South African emigrants. We’ve helped thousands of South Africa navigate the tricky administration around their taxes, cross-border finance, forex and transfer.

We’re an authorised forex dealer with existing relationships with all major banks, fund administrators and tax authorities who can ensure that your plans run smoothly.

Talk to us about your options and leave all the leg-work to our team of experts so you can focus on establishing your new life abroad.

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