What happens after someone dies from a SARS perspective?

When a taxpayer dies, their tax affairs do not simply come to an end. SARS must be informed, outstanding returns must be completed and the tax consequences of death must be determined.

Depending on the circumstances, SARS may deal separately with the deceased person, the deceased estate and the estate-duty liability before the estate can be finalised.

Why the tax process matters

The Master’s Office controls the legal administration of the estate. SARS deals with the tax consequences arising before, on and after death.

These processes meet in the executor’s Liquidation and Distribution Account. The account cannot be completed accurately without establishing the estate’s income tax, capital gains tax and estate-duty position.

Unresolved tax affairs can delay approval, distribution and closure of the estate.

SARS must be informed and the executor must be linked

The death must be reported to SARS irrespective of whether the estate will incur estate duty.

Once appointed, the executor generally acts as the representative taxpayer. The executor’s official appointment documents must be provided so that SARS can update its records and the contact details used for estate correspondence.

This does not happen merely because someone was nominated in the will. The Master must first issue the relevant Letter of Executorship or Letter of Authority.

SARS may require documents such as:

• The death certificate.
• The deceased’s identity and tax information.
• The Letters of Executorship or Authority.
• The executor’s identity and contact information.
• The estate number.
• The will.
• Supporting authority or mandate documents.

Accurate reference and case numbers should be used consistently in later correspondence.

Tax is divided between the deceased person and the estate

From an income tax perspective, two periods may need to be dealt with.

All affairs before and up to the date of death

A final income tax assessment is required for income and deductions relating to the deceased person up to the date of death. This may include:

• Employment or business income.
• Interest and investment income.
• Rental income.
• Trust distributions.
• Deductions and provisional-tax payments.
• Capital gains or losses arising on death.

Death can trigger a deemed disposal of certain assets for capital gains tax purposes. The calculation depends on the asset, its base cost, market value and whether an exclusion or rollover applies.

All affairs after the date of death

Income earned while assets are held by the deceased estate belongs to the estate’s post-death period. Examples include:

• Interest on estate bank accounts.
• Rental income.
• Business or farming income.
• Investment distributions.
• Capital gains or losses when assets are sold.

Where taxable income accrues after death, the deceased estate may require a second income tax registration and its own returns. Income belonging to the deceased person should not be mixed with income earned by the estate after death.

Estate duty and final tax compliance must be resolved

Estate duty is separate from income tax and capital gains tax.

The executor determines the estate-duty position when preparing the Liquidation and Distribution Account and the REV267 estate-duty return. The calculation considers property, deemed property, allowable deductions and the available abatement.

Estate duty is currently charged at:

• 20% on the first R30 million of dutiable value.
• 25% on dutiable value above R30 million.

An estate may have no estate duty to pay and still have income tax or capital gains tax obligations.

Estate duty can also, in certain circumstances, be payable by a person receiving property directly—for example, the portion attributable to certain policy proceeds paid to a beneficiary.

Once all required returns have been submitted, assessments issued and tax liabilities settled, the executor can request a Deceased Estate Compliance letter. This confirms to the Master that the tax affairs of the deceased person and estate have been brought into compliance.

Questions every family should ask

• Were the deceased’s tax returns up to date?
• Can the base costs of major assets be proved?
• Did the estate continue earning income after death?
• Are there trusts, companies, foreign assets or loan accounts?
• Is there enough cash to pay tax before assets are distributed?
• Do policy proceeds or deemed property affect estate duty?
• Has provision been made for tax assessments and possible delays?

The Ilifa perspective

Tax administration after death is not merely the submission of an estate-duty calculation or the filing of a single ‘final’ return. It is a reconciliation of the deceased person’s affairs, the estate’s post-death activity and the estate-duty position.

A considered estate plan, complete records, reliable valuations and early tax reviews allow the executor to calculate liabilities before distributing assets or making commitments the estate may not be able to meet.

Begin a considered conversation

A coordinated estate plan should consider not only who inherits, but what SARS may require before the inheritance can be delivered.