Inheritance Tax in South Africa: Estate Duty Explained (With a Worked Example)

Let's clear up the biggest confusion in South African estate planning in one line:

South Africa has no "inheritance tax" on the person who inherits, but it does tax the estate of the person who died. That tax is called estate duty.

So when people search "inheritance tax south africa", "tax on inheritance", or "estate duty", they're all asking about the same system. Here it is, in plain language: what gets taxed, the current rates and thresholds, the spouse rules that change everything, the OTHER taxes that hit an estate (there are four in total), and a full worked example in rand.

Estate duty guide

The tax is paid by the estate, not by the heir

The practical question is how much tax and cost shrink the estate before the family receives anything.

R3.5m abatement: first dutiable portion is duty-free.
20% / 25%: estate duty rates above the abatement.
Spouse deduction: section 4(q) can defer the bill.
Liquidity: SARS and fees need cash, not only assets.

First: do heirs pay tax on what they inherit?

No. If your mother leaves you R2 million, you don't declare it as income and SARS doesn't tax you on receiving it.

The tax happens one step earlier, inside the deceased estate, before distribution. The executor calculates it, SARS collects it, and heirs receive what's left. So the real question isn't "will I be taxed on my inheritance?", it's "how much will tax shrink the estate before it reaches the family?"

Rates and deductions

Estate duty: the rates and the R3.5 million abatement

The Estate Duty Act works like this:

Every estate gets an abatement of R3.5 million, the first R3.5 million of your dutiable estate is duty-free.
Above that, estate duty is levied at 20% up to R30 million, and 25% on the value above R30 million.

Two provisions do the heavy lifting in most families' planning:

1.) The spouse deduction (section 4(q)). Everything you leave to your surviving spouse is deducted before duty is calculated. Leave your entire estate to your spouse see estate duty today: R0. The liability is deferred to the second death.

2.) The portable abatement. If the first-dying spouse didn't use their R3.5 million abatement, it rolls over, the surviving spouse's estate can claim up to R7 million duty-free. Married couples effectively plan around R7 million, not R3.5 million.

Four possible taxes

Estate duty is only one of four

When someone dies, up to four taxes come into play:

1.) Income tax. The executor must bring the deceased's tax affairs up to date, a pre-death assessment (income to date of death) and a post-death assessment (income the estate earns during administration: interest, rent, dividends).

2.) Capital gains tax (CGT). Death is a deemed disposal: SARS treats the deceased as having sold all their assets at market value on the date of death. Key softeners:

A once-off R300,000 exclusion in the year of death (versus the usual R40,000 annual exclusion)
Assets left to the surviving spouse roll over, no CGT now; the spouse inherits the base cost
The primary residence exclusion (up to R2 million of gain) still applies
Proceeds of life policies and retirement fund interests are generally excluded

3.) Estate duty, as above.

4.) Donations tax (20%), only relevant if the deceased made taxable donations before death; donations between spouses are exempt.

These taxes interact, which is why executor skill directly affects how much your family keeps. (What executors do)

Worked example

The Naidoo estate, in rand

Mr Naidoo dies. He is unmarried (widowed), leaving everything to his two adult children.

The estate:

House: R3,200,000 (bought for R1,200,000; his primary residence)
Investments: R2,500,000 (base cost R1,500,000)
Life policy payable to the estate: R1,500,000
Car and contents: R300,000
Gross estate: R7,500,000
Less: bond and debts R500,000; funeral and administration costs (incl. executor's fee) R400,000

Step 1, CGT (in his final income tax return):

House gain: R2,000,000 see minus R2,000,000 primary residence exclusion see R0
Investment gain: R1,000,000 see minus R300,000 death-year exclusion see R700,000 see 40% inclusion = R280,000 taxable see at his marginal rate (say 45%) see CGT ± R126,000

Step 2, Estate duty:

Net estate: R7,500,000 − R500,000 − R400,000 − R126,000 ≈ R6,474,000
Minus abatement R3,500,000 see dutiable amount R2,974,000
Estate duty at 20% see ± R594,800

Total tax bill: roughly R720,000, before a cent reaches the children.

Now replay it with one change: Mr Naidoo's wife is alive and he leaves everything to her. Section 4(q) deducts the full spousal bequest, the CGT rolls over, and the immediate tax bill is approximately R0, with her estate later enjoying up to a R7 million abatement. Same assets. Different structure. Hundreds of thousands of rand of difference.

That's not a loophole. That's what estate planning IS.

Planning levers

Five legitimate ways to reduce the bite

Use the spousal deduction and portable abatement deliberately, structure bequests between spouses with the second death in mind.
Check your life policy beneficiaries. A policy paid to a named beneficiary can still be "deemed property" for estate duty, but keeps cash out of the frozen estate, and policy structuring affects both duty and liquidity.
Consider a trust for growth assets, future growth happens outside your estate. (With honest eyes: when a trust makes sense, and when it doesn't)
Plan for liquidity. The cruellest estate outcome: enough assets but no cash, forcing the sale of the family home to pay SARS and fees. Insurance solutions exist precisely for this, ours covers winding-up costs so the inheritance arrives intact.
Keep the will current. Every strategy above lives or dies in the wording of your will. (Free, 48 hours)

Your estate number

Get your number

Generic articles end here. Your estate has a specific number: gross value, deductions, abatement, projected duty, projected CGT, liquidity gap.

We calculate it in one free call, and show you, in rand, what your current structure would cost your family versus a planned one.

Quick answers

Questions families ask about inheritance tax

How much is inheritance tax in South Africa?

Heirs pay nothing on receiving an inheritance. The estate pays estate duty: 20% above the R3.5 million abatement, rising to 25% above R30 million.

How much tax do you pay on a deceased estate?

Up to four taxes apply: final income tax, capital gains tax on the deemed disposal (with a R300,000 death-year exclusion), estate duty, and donations tax where relevant.

Do I pay tax on money inherited from my parents?

No, the estate settles the taxes before distribution. What lands in your account is yours.

Is there estate duty between spouses?

Bequests to a surviving spouse are deducted under section 4(q), no estate duty on the first death, and the unused abatement rolls over (up to R7 million on the second death).

Does a trust avoid estate duty?

Assets properly held in a trust fall outside your estate, so future growth escapes duty, but trusts carry their own costs and tax rates. It's a tool for specific situations, not an automatic win: honest breakdown here.

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