How trusts avoid taxes for property investors
If you own investment property in your own name, SARS will grab about 30% of it’s value in taxes when you die.
You built an investment property portfolio. It cost you R10m and, by the time you die, it is worth R40m. Here’s what happens.
You are deemed to have sold the properties to your deceased estate at the moment of death for their market value of R40m. That means a capital gain of R40m – R10m which will be subject to CGT at 18%, or R5,4m
Your estate will be assessed for Estate Duty at 20% on the R40m minus the R5,4m CGT, which amounts to another R6,9m.
So, the total tax imposed on this part of your estate will amount to R12,3m. Again, this tax has to be paid to SARS in cash, but where is the money going to come from this time? Your executor will have to sell some properties, probably on auction as he’s not going to be able to hang around trying to get the best price (in other words, your estate will have become a distressed seller).
Your estate will have been hit with R12,3m total tax on an asset that is worth R40m.
If you had grown the wealth in a trust structure, none of this would have happened, because when you die the trust does not die, so there are zero taxes on death.