Estate Duty on Offshore Assets (for SA Tax Residents)

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Estate duty is a tax levied after death when we transfer assets to our heirs. Many countries around the world have estate duty laws (although some levy no estate duty at all).

However, estate duty is not necessarily limited to the country in which you are a tax resident or where you physically passed away. In certain circumstances, estate duty may also be levied in the country where an asset is held. As a result, if you are a tax resident in South Africa but also own assets outside South Africa, your estate may be liable for additional taxes in other tax jurisdictions.

Here are some crib notes for the tax jurisdictions where South African residents commonly have offshore assets.

Estate duty notes for countries where SA tax residents commonly hold assets

United States – Situs tax

US non-residents are subject to estate tax on their situs assets, i.e., assets owned in the US, which include but are not limited to, property and financial instruments such as equities, bonds, and cash. The estate tax is usually only levied on the value of the situs assets that exceed $60 000 and the rate is progressive, ranging from 18% to 40%. Situs tax is complex and the $60 000 exemption may not apply in all circumstances.

United Kingdom – Inheritance tax

The general rule is that inheritance tax is payable on assets such as property, equity, cash, and bonds. The estate duty is levied on estates valued over £325 000 at a rate of 40%, but there are exemptions and reliefs available for certain types of assets.

Canada – Estate tax

In Canada, there is no federal estate tax, but there are provincial estate taxes that may apply to the assets of a deceased person. As a non-resident of Canada, you may be subject to provincial estate tax on the value of your Canadian assets, such as real estate, investments, and other property located in Canada.

The estate tax rate and exemptions vary by province, so it is important to check the rules in the specific province where the assets are located, which can range from zero to 40%.

Summary: estate duty considerations for South Africans with offshore assets

If you own a physical property or are a shareholder in a business offshore, it is unlikely that you can easily reduce your potential estate duty liability in that offshore tax jurisdiction. You would need to consult a specialist familiar with both the non-resident tax laws in that specific jurisdiction as well as any double tax agreements with South Africa.

For financial instruments such as equities, cash or bonds that are easily liquidated, the situation is simpler. You can use investment vehicles that will keep the assets offshore, with no requirement for repatriation on death. Such investment vehicles also facilitate a smooth winding up of your estate and avoid attracting estate duty in multiple tax jurisdictions.

If you currently hold assets offshore, or if you are an heir to offshore assets that may be taxed both in South Africa and another jurisdiction, now is a good time to assess the situation for effective estate planning. Put this matter on the agenda for your next annual review with your CERTIFIED FINANCIAL PLANNER® to assess the situation and identify the most tax-effective approach for your estate.

Ryan Winter
By Ryan Winter, CFP®