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Death and taxes

Thursday, 27 March 2014   (0 Comments)
Posted by: Author: Ingé Lamprecht
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Author: Ingé Lamprecht (Moneyweb)

What happens to my tax-free savings account when I pass away?

No final policy decisions have been made on the tax treatment of the soon-to-be-introduced tax-fee savings account in the event of the account holder’s death.T

he account, which will likely be introduced on March 1, 2015, will offer individuals the opportunity to save up to R30 000 per annum in a tax-free savings vehicle with a variety of eligible underlying investment products including most unit trusts, bank savings accounts, fixed deposits, retail savings bonds and exchange-traded funds (ETFs).

A lifetime contribution limit of R500 000 will be applicable and all returns on the investments via these accounts will be tax-free in the hands of the individual, regardless of whether it is dividends, capital gains or interest. Draft legislation to introduce the vehicle will likely be published in July this year and legislation could be passed by year-end.

Christopher Axelson, director for personal income taxes and savings at National Treasury, says they haven’t made any final policy decisions on the tax treatment of the savings account in the event of an individual’s death.

While capital gains tax as well as estate duty will be applicable to other assets when a person passes away, Axelson says it is unlikely that capital gains tax will be levied on the tax-free savings account in such an event.

Decisions on estate duty will form part of the regular estate duty reform recommendations that the Davis Tax Committee will put forward in due course, he says.

The committee, which was appointed in July last year, was tasked with assessing the "progressivity of the tax system and the role and continued relevance of estate duty to support a more equitable and progressive tax system”. This also included the relationship between capital gains tax and estate duty.

The assessment of estate duty is part of the work that will be undertaken by the committee this year which suggests that recommendations could be made fairly soon.

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