Property, Family and Tax: Protecting Your Legacy

Estate planning involves more than deciding who will inherit your assets. South African families should also consider the tax implications of donating, inheriting or selling property.

Capital Gains Tax (CGT), Estate Duty and Donations Tax can affect the value of assets ultimately retained by a family member.

Understanding how these taxes work, and when they may arise, can help families make informed decisions, plan for potential liabilities and avoid unexpected financial consequences.

Although CGT, Estate Duty and Donations Tax are separate taxes, more than one may apply when dealing with the same property. Understanding their differences is therefore important when planning a property transfer or considering how assets should be managed and distributed.

Understanding The Three Taxes

Capital Gains Tax (CGT) is calculated by comparing the proceeds with the asset’s base cost, allowable deductions and applicable exclusions.

The taxable portion of the net capital gain is included in taxable income and taxed at the applicable rate. For individuals, the maximum effective CGT rate is 18% for the 2026/2027 tax year.

Estate Duty is a tax calculated on the dutiable value of a deceased person’s estate after allowable deductions and the R3.5 million abatement is considered.

For the 2026/2027 tax year, it is charged at 20% on the first R30 million and 25% on the portion exceeding R30 million.

The calculation involves the estate's overall assets, liabilities and applicable deductions.

Donations tax may apply when property or other assets are donated during a person’s lifetime.

For the 2026/2027 tax year, natural persons receive an annual exemption of R150 000, calculated across their donations for the tax year.

It is charged at 20% on cumulative taxable donations up to R30 million and 25% above that threshold. Certain donations, including qualifying donations between spouses, are exempt.

These taxes should be considered together when planning a property transfer or an estate. A transaction that appears straightforward may have more than one tax consequence.

Scenario 1: Transferring property to children or family members.

Donating property to children during your lifetime may have tax consequences.

For example, a parent who donates a property valued at R3 million to an adult child may be liable for Donations Tax subject to the R150 000 annual exemption.

The donation may also trigger CGT, as the property is treated as having been disposed of at market value.

Transferring property for a nominal amount does not necessarily avoid these taxes. Families should obtain appropriate advice before proceeding.

Scenario 2: Selling an inherited primary residence

Inheriting a family home and subsequently selling it has different tax consequences.

When a person passes away, their assets are treated as having been disposed of at market value immediately before death for CGT purposes. However, statutory exclusions and rollover provisions may apply, including relief in certain circumstances where assets pass to a surviving spouse.

Consider a situation where a daughter inherits her mother’s primary residence, valued at R2.5 million at the date of death. A year later, she sells the property for R2.8 million.

The property’s market value at the date of death becomes the daughter’s base cost for CGT purposes. The R300 000 difference is preliminary nominal gain, not necessarily the final taxable capital gain. Allowable costs, improvements, selling expenses and applicable exclusions may affect the calculation.

The primary residence exclusion is also not automatic: ownership, actual use as a residence, the portion used as a home and the relevant period must be considered.

It is therefore important to distinguish between the potential CGT liability arising on death and any further liability arising when the beneficiary sells the inherited property.

Scenario 3: Estate with extensive property portfolios

Estates that who own multiple properties, including rental properties, holiday homes and commercial buildings, may face more complex estate administration and tax considerations.

For example, a deceased estate with five rental properties may have substantial combined market value but insufficient cash to settle Estate Duty, CGT, outstanding debts and administration expenses.

This creates a liquidity problem. The executor may consider available financing, life-policy proceeds, payment arrangements or, where necessary selling an asset.

Properties held through companies or trusts also require additional consideration, as their tax and administration implications may differ. Families should obtain professional advice before restructuring ownership.

What Should Families Review In 2026?

Whether planning to transfer property during your lifetime or preparing for the eventual distribution of your estate, considering the following:

1. Review your will: Ensure that your estate plan reflects your current wishes and clearly addresses the distribution of your estate.

2. Asses potential tax liabilities: Consider the possible CGT, Estate Duty and Donations Tax implications of donating, inheriting or selling property.

3. Evaluate liquidity: Ensure that your estate has sufficient funds to settle taxes, debts and administration costs without unnecessarily selling valuable assets.

4. Review ownership structures: Consider whether properties held in personal names, companies or trusts remain appropriate for your circumstances.

5. Obtain professional advice: Before donating, changing ownership or implementing an estate-planning strategy seek appropriate legal and tax advice to understand the full financial implications.

Planning Ahead Can Make a Difference

Property often represents a significant portion of a family's wealth. However, donating, inheriting or selling property can come with unexpected tax consequences.

By reviewing your estate plan, assessing potential tax liabilities and obtaining professional advice before making significant decisions, you can reduce the risk of unnecessary costs, while protecting your family’s wealth.

Written by: Gustav Snyman
Moderated and approved by: Rohula Kgabu

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