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Trusts and Estate Planning

Trusts are taxed at 45% and their CGT rate is 36%. That’s why I so often hear that “SARS is targeting trusts”. So, how is it that trusts are one of the main instruments for saving tax?

Firstly, no properly structured trust should ever earn income tax or capital gains, so the above two taxes are totally irrelevant.

How is that? A trust should only own shares in companies, and it is the companies that make the profits and pay the taxes, not the trust. So we’re dealing with 27% Income Tax (when the new rate kicks in) and 21,6% CGT. No problem there.

Now let’s look at the taxes on death.

If you hold your own wealth, then the second dying of you and your spouse will be deemed to have sold your assets to their deceased estate at the moment of death. That means a deemed capital gain and CGT at, probably, 18%. The CGT is deducted from the estate and the balance, less the combined allowance of R7m, will be taxed with Estate Duty at 20%.

None of that would have happened if the wealth was held in a trust because, when you die, the trust does not die and no taxes kick in.

That’s how trusts save on tax.


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