| Capital gains tax at death |
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Capital gains tax is a relatively new concept for most people, especially when it comes to estates and estate planning. When a person dies, two tax entities come into being for the purpose of capital gains tax, namely the deceased and his/her estate. Capital gains tax is levied against the growth in value of an asset in the hands of the deceased. In other words, the market value of the asset on the date of death, minus the basic cost thereof. When a person dies, it is deemed that he/she disposed of his/her assets on the day before date of death. This deemed disposal is to the deceased estate. Because the assets are deemed disposed of the day before date of death, all exceptions that the deceased would have been entitled to, are available to the estate. Similar to estate duty, a bequest to the surviving spouse won't be included in the calculation of capital gains tax, because it is deemed a 'roll over'. Capital gains tax will only be calculated in the estate of the surviving spouse. Assets bequeathed to a public charity organization also qualify for this 'roll over'. When the primary residence of a deceased is sold by the executors of the estate in order to settle estate debts, the estate also qualifies for the R1.5 million reduction. The deceased also qualifies for a yearly exclusion of R120 000 in the year he/she died. The rate applicable to individuals, namely 25%, will be included when calculated what amount of taxable gains tax should be included with the taxable revenue. The question which arises is whether the living right a person owns in a retirement village, qualifies as a primary residence and if the reduction of R1.5 million should apply. A primary residence is described as a residence wherein a natural person or a special trust has an interest in and the natural person or beneficiary of the special trust or the spouse of the person or beneficiary usually occupied as his/her primary residence and said residence was mainly used for domestic purposes. An interest includes the right of use or living right. Therefore a living right in a retirement village qualifies as a living right and is therefore subject to capital gains tax. As it also complies with the requirements of a primary residence, it qualifies for the usual exemptions by the Income Tax act, in other words, for the R1.5 million reduction. With acknowledgement to SILKE: 'Suid-Afrikaanse Inkomstebelasting 2008' and the South African Financial Planning Handbook 2009. |