Do I pay income tax on an inheritance I receive?

No. An inheritance is a capital receipt in your hands and is not gross income, so it is not added to your taxable income and you do not pay income tax on it. Any estate duty and any capital gains tax arising at death are settled inside the deceased estate, not by you as the heir.

How much can an estate be worth before estate duty is due?

The R3.5 million abatement is deducted from the net value of the estate first. An estate with a net value of R3.5 million or less has a dutiable value of zero and pays no estate duty. Duty applies only to the dutiable value above the abatement.

What are the estate duty rates?

20% on the first R30 million of the dutiable value of the estate, and 25% on the dutiable value above R30 million. The rate is applied to the dutiable value, which is the net value after the R3.5 million abatement.

Who pays the estate duty?

The estate pays it. The executor works it out while winding up the estate and settles it from the estate's assets before distributing the balance. The exception is a life policy paid directly to a named beneficiary, where the duty attributable to that policy is payable by the beneficiary.

Is estate duty the same as capital gains tax at death?

No. They are separate. Death is a deemed disposal for capital gains tax, so an estate can face CGT on the growth in the assets and estate duty on the value passing. A bequest to a surviving spouse rolls over for CGT purposes, but that does not remove the estate duty question. To understand the capital gains side of a death or a sale, see our guide on tax when selling property or shares and the capital gains tax calculator. For the income tax treatment of what you receive, read is an inheritance taxed in South Africa and is a life insurance payout taxed.

- https://www.sars.gov.za/types-of-tax/estate-duty/ - https://www.sars.gov.za/tax-rates/other-taxes/

Estate Duty in South Africa Explained

Estate duty is a tax on the value a person leaves behind when they die. In South Africa it is charged at 20% on the first R30 million of the dutiable value of the estate and 25% on the part above R30 million, after a R3.5 million abatement is deducted. The estate settles it, not the people who inherit, and an inheritance you receive is a capital receipt that is not added to your own income tax.

That last point catches many families out. Estate duty and income tax are two different things. The estate is wound up and any estate duty is paid out of it before the remainder is distributed, so an heir who receives R500,000 from an estate does not declare that R500,000 as income and does not pay income tax on it.

What estate duty is charged on

Estate duty is levied on the dutiable value of a deceased person's estate. Broadly, you start with everything the person owned (property, investments, cash, vehicles) plus certain "deemed property" such as some policy proceeds, then subtract allowable deductions and liabilities to reach the net value. From that net value you deduct the abatement to reach the dutiable value, and the rate is applied to that.

The order matters:

Add up the property and deemed property in the estate.
Subtract allowable deductions and the estate's liabilities to get the net value.
Subtract the R3.5 million section 4A abatement to get the dutiable value.
Apply 20% to the dutiable value up to R30 million, and 25% to anything above R30 million.

The R3.5 million abatement

The section 4A abatement is a flat R3.5 million that is deducted against the net value of every estate before duty is worked out. In practice it means an estate with a net value of R3.5 million or less has no dutiable value and pays no estate duty. Only the value above that abatement is exposed to the 20% or 25% rate.

Who actually pays it

Estate duty is a liability of the estate. The executor calculates it as part of winding up the estate and pays it from the estate's assets before the balance goes to the heirs. There is one common exception worth knowing: where a life policy is paid directly to a named beneficiary rather than into the estate, the estate duty attributable to that policy is payable by the beneficiary who received it. So a beneficiary of a direct policy payout can carry a share of the duty even though the money did not pass through the estate account.

Estate duty is separate from capital gains tax

Death also triggers a deemed disposal of the deceased person's assets for capital gains tax, so an estate can face both CGT (inside the estate, on the growth in the assets) and estate duty (on the value passing) on the same death. These are calculated separately. Assets left to a surviving spouse roll over, which defers the CGT at that stage, but that is a CGT rule and does not by itself remove estate duty. If your estate is large enough to be near either threshold, get the two calculations done properly rather than assuming one covers the other.

A worked example

Take an estate with a net value of R8 million after all liabilities and allowable deductions have been subtracted. Work the duty out step by step.

Start with the net value and take off the abatement:

R8,000,000 - R3,500,000 = R4,500,000 dutiable value

The dutiable value of R4.5 million is below R30 million, so the whole amount is charged at 20%:

R4,500,000 × 20% = R900,000

So the estate owes R900,000 in estate duty, payable from the estate before the remaining R7.1 million (the R8 million net value less the R900,000 duty) is distributed to the heirs. If the same estate had a net value of R35 million, the first R30 million of dutiable value would be at 20% and only the slice above R30 million at 25%, because the higher rate applies only to the part over R30 million, not to the whole estate.