New Binding Private Ruling (BPR 151) – Tax Consequences of the Renunciation of an Inheritance
23 August 2013
Posted by: Author: Danielle Botha
Author: Danielle Botha (Cliffe Dekker Hofmeyr)
The South African Revenue Service (SARS) issued a Binding Private Ruling (BPR 151) on 13 August 2013 relating to the donations tax, capital gains tax and estate duty consequences of the renunciation (repudiation) of a right to benefit under a will.
The descendants of the testator were named as residuary heirs in the latter's will. Additionally, certain legacies were bequeathed to the surviving spouse by the testator in terms of the will.
The ruling suggests that the executor of the estate anticipated that estate duty would be levied on the net value of the estate, and consequently that the value of the estate exceeded the R3.5 million rebate for estate duty purposes. The descendants decided to renounce (repudiate) their right to benefit in terms of the will. Section 2C of the Wills Act, No 7 of 1953 (Wills Act) provides that where a descendant stands to benefit, together with the surviving spouse, in terms of the will of a testator and the descendant renounces his benefit, the benefit will vest in the surviving spouse.
The question posed by BPR 151, was whether renunciation in terms of s2C of the Wills Act, will trigger donations tax or capital gains tax consequences in addition to estate duty.
SARS ruled that the renunciation would not result in any donations tax or capital gains tax consequences. Furthermore, inheritances due to the surviving spouse would accrue, in terms of s4(q) of the Estate Duty Act 45 of 1955, by operation of law and by virtue of the proposed renunciations. Lastly, in terms of paragraph 67(2)(a) of the Eight Schedule to the Income Tax Act, No 58 of 1962, a deceased person must be treated as having disposed of an asset to his/her surviving spouse, and such disposal will not be subject to capital gains tax, where ownership of the asset is acquired through a testamentary bequest, or succession or a re-distribution agreement entered into by the heirs of the estate.
Interestingly, common law dictates that repudiation of a benefit received under a will, has the same effect as the beneficiary's death prior to the death of the testator (Ex parte Marais & others 1953 (4) SA 620 (T) at 623). In other words, whilst beneficiaries always have the right to decide whether or not to accept a benefit accruing by virtue of a testamentary provision, they have no say regarding the treatment of the repudiated benefit (other than their awareness of the possible consequences of the repudiation) The vested personal right of the beneficiary against the executor falls away. Case law further dictates that repudiation operates retrospectively as from the moment of vesting of rights, which is usually upon the death of the testator (Swift v Pichanick 1982 (1) SA 904 (Z); Kellerman v Van Vuuren 1994 (4) SA 336 (T)).
Against this background, BPR 151 demonstrates that SARS does not appear to consider repudiation a disposal or a donation for tax purposes.