Name

Estate duty (ED)

Inheritance tax (IHT)

Federal estate tax (FET)

Rate

20% or 25% on the dutiable value of an estate above R30 million

40%

40% (maximum)

Threshold

R3,5 million

£325 000

US$60 000

Rollover relief between spouses

R7 million on the death of the surviving spouse.

£650 000 on the death of the surviving spouse.

There is a complete spouse exemption for transfers between spouses and civil partners if both spouses or civil partners are domiciled in the UK. There is also a complete spouse exemption for transfers from a non-UK-domiciled spouse or civil partner to a UK-domiciled spouse or civil partner. However, there is a lifetime limit of £325 000 on the value of assets that can be transferred IHT-free by a UK-domiciled spouse or civil partner to their non-UK domiciled spouse or civil partner.

An unlimited marital deduction (rollover relief) is provided only between spouses who are both US citizens, ie the deceased spouse and surviving spouse must both be US citizens to qualify.

If the surviving spouse is not a US citizen but property is bequeathed by a spouse who is a US citizen to a ‘qualified domestic trust’ to benefit a spouse who is a non-US citizen will also qualify for the unlimited marital deduction.

In all other cases, the exemption amount is limited to US$60 000.

Immovable property

Subject to ED in SA.

Subject to IHT in the UK.

Subject to FET in the US.

Exchange-traded funds (ETFs)

Subject to ED in SA if the issuer (entity) of the ETF is registered (incorporated) in SA.

Subject to IHT if the issuer (entity) of the ETF is resident or registered in the UK.

Note:
The location of the exchange(s) used by the ETF does not affect the situs of the fund.

For example: If an ETF is registered in Ireland and the ETF invests on the London Stock Exchange, the situs would be determined by the residence of the person or company issuing the ETF, which in this case is Ireland.

Subject to FET if the issuer (entity) of the ETF is registered (incorporated) in the US.

Note:
The location of the exchange(s) used by the ETF does not affect the situs of the fund.

For example: If the fund (entity) issuing the ETF is incorporated in Ireland and the ETF invests on a stock exchange in the US, the situs would be determined by the place of incorporation of the fund (entity) issuing the ETF, which in this case is Ireland.

Equities

Subject to ED in SA if the share register of the company issuing the shares is held in SA.

Note:
Where a company is registered in more than one jurisdiction, eg dual-listed companies, with different share registers, the register on which the shares would normally be traded is the register that determines the situs of the share.

Subject to IHT if the share register of the company issuing the shares is held in the UK.

Note:
Where a company is registered in more than one jurisdiction, eg dual-listed companies, with different share registers, the register on which the shares would normally be traded is the register that determines the situs of the share.

Subject to FET in the US if they are ‘issued by a domestic corporation’, ie a corporation incorporated in the US and under the laws of any US state.

American depositary receipts (ADRs) are not subject to FET because, although ADRs comprise stocks that trade in the US, they represent shares of stock of foreign corporations. ADRs allow US banks to purchase bulk shares from foreign corporations, bundle the shares into groups and reissue them on US stock markets. ADRs were developed because of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values.

Unit trusts

Subject to ED in SA if the register of unitholders is kept in SA.

No IHT on UK-authorised unit trusts and open-ended-investment companies (OEICs) authorised and regulated by the UK Financial Conduct Authority (these are ‘excluded assets’ and fall outside the estate of a non-UK domiciliary).

Subject to FET in the US if the unit trust is deemed to be US-situs if it is ‘issued by a domestic corporation’, ie a corporation (or entity or fund) incorporated in the US.

Foreign collective investment schemes (CISs)

Subject to ED in SA (residence-based system of taxation).

Generally excluded from IHT in the UK.

Generally excluded from FET in the US.

Cash accounts or deposits in banks

Subject to ED in SA.

Only British pounds held in a UK bank account will be subject to IHT – foreign currencies are excluded from IHT.

US bank deposits (ie vanilla bank deposits) that generate interest income and that are held by non-resident aliens will be exempt from federal income tax and will not be subject to FET, provided that the deposit is not connected with a US trade or business.

If funds are held in special deposits (ie specific kinds of money or moveable property is placed in the possession of the bank with an obligation imposed on the bank to return the identical thing deposited) by a US bank in a custodial capacity or in deposits held at US brokerage firms or other institutions that are not considered banks, no exemption will apply.

Deposits held with a foreign branch of a US bank are treated as foreign situs property, whereas deposits with a US branch of a foreign bank conducting business in the US are treated as US situs property and are subject to FET.

The situs of a loan is the place where the loan can be enforced or where the obligation to pay fails to be performed. A loan from a South African resident individual to another South African resident individual will be included in ED in SA.

The situs of a loan is the place where the loan can be enforced or where the obligation to pay fails to be performed. A loan from a South African resident individual to a UK-resident or domiciled individual would therefore be a UK situs asset in the UK-resident or domiciled individual’s estate and will be subject to IHT.

The general rule is that a loan will be US situs if it is a debt obligation of a US person.

There are however instances where the debt of a non-resident alien will be “treated as outside the US”, and hence will not be subject to FET, such as inter alia, short term debt which is generally debt payable 183 days or less from the date of original issue; bank deposit debt that bears interest; and interest bearing debt if any interest thereon would be eligible for the "portfolio interest exemption" which is defined as non-effectively connected interest i.e. interest not effectively connected with a US trade or business and the interest is paid on an obligation (debt) that is generally in registered form, as opposed to bearer form, and the obligation must have been issued after 18 July 1984. There are other complicated requirements that will also need to be considered.

Assets held by a trust

South African-registered trust: The assets are generally excluded from the founder's estate. The value of assets settled on the trust through a loan account is generally pegged.

International (offshore) trust: There is a 10-year charge on UK situs assets.

International (offshore) trust: The assets are generally excluded from FET in the US, provided there are no beneficiaries resident in the US.

US property transferred by a non-resident before death may in certain circumstances be deemed to have a US situs and therefore be subject to FET.

Assets held by an international company

Shares held in an international (offshore) company that are owned by SA-resident individuals will be subject to ED in SA.

Shares held in international (offshore) companies that own UK immovable property are deemed to be UK situs assets and will be subject to the 10-year charge in the UK.

Shares held in international (offshore) companies that own US situs assets are generally excluded from FET in the US.

Assets held in an international life policy (life wrapper)

If the international wrapper is held by a SA resident individual, it will be subject to ED in SA.

Excluded from IHT in the UK.

Excluded from FET in the US.

Foreign assets acquired via an institutional foreign portfolio allowance (commonly called ‘asset swap’ investments)

A South African investment manager registered as an institutional investor for exchange control purposes is authorised to use assets under its management to acquire foreign asset exposure (commonly called ‘asset swap investments’). Under the exchange control regulations, the institution is required to keep control of the assets. The client, however, remains the beneficial owner of the assets and tax, as a general rule, follows beneficial ownership.

UK IHT implications, as set out above, will apply.

US FET, as set out above, will apply.

• The executor of a non-domiciled individual’s estate comprising UK situs assets must file an Inheritance Tax Return with Her Majesty Revenue & Customs within 12 months of the end of the month of death.
• Payment of any IHT is due by the end of the 12th month after the month of death but interest is charged after six months.

• The executor of a non-resident individual’s estate comprising US situs assets must file a US estate tax return with the Internal Revenue Service (IRS) within nine months of the date of death.
• Payment of any FET is due within nine months of the date of death.

Impact of where the assets are custodied

• If assets are custodied in the US, the executor must provide a transfer certificate from the IRS before the assets can be transferred to the deceased heirs.
• If assets are custodied outside the US, the custodian will not request a transfer certificate from the IRS but will usually be prepared to transfer the assets when they are satisfied that the probate process in the country of residence and/or domicile has been completed. For this reason, many executors never become aware that the estate has exposure to FET. The risks to this are twofold:
  • If the executor does not file and settle FET, the custodian could be held liable for the FET if there is no executor appointed in the US.
  • If a custodian has entered into a qualified-intermediary agreement with the IRS, the IRS has the powers to audit the custodian’s records.