Cross-border inheritance: what you need to know
We’ve all heard that the only two certainties in life are death and taxes. While we may or may not have come to terms with the former, the latter can be ruinous if we don’t plan ahead.
This is particularly important if you have children or heirs that have made a new life overseas. If you want to leave all or a part of your estate to them, you must familiarise yourself, and them, with the rules of cross-border inheritance and tax.
Anthea Stephens, senior associate at Maitland Family Office, says you need to be aware of the exchange control requirements that must be fulfilled before a South African living abroad can receive an inheritance from SA.
The executor of a deceased estate must provide either an emigration reference number or a tax clearance certificate before transferring an account into the name of a beneficiary who is no longer resident in SA, she explains.
Stephens says that if your adult child has formally emigrated, and gone through all the official procedures, they can simply supply an emigration reference number, and barring any other complications “the assets will flow”.
If your family members have not emigrated formally, then tax clearance is required, she says.
Formal emigration is when you stop being a SA exchange control resident by submitting a form (an MP 336(b) to the Reserve Bank.
A South African who has not submitted this form remains a SA exchange control resident and is considered by the Reserve Bank to be a SA resident temporarily abroad.
Shaun Eastman, trust officer and cross border specialist with Sentinel International, says the first important thing is to be able to differentiate between tax residency and exchange control residency. These two concepts are completely different and are dealt with by two separate institutions in SA.
The SA Revenue Service (Sars) deals with tax residency and the Reserve Bank’s financial surveillance department with exchange control residency, he says.
Eastman warns that the worst assumption you can make is that your heirs are exempt from SA’s exchange control regulations because they have been granted permanent residency in another country. You must be aware that you may be an exchange control resident, but not tax resident or a tax resident but not an exchange control resident, he says.
If your children living overseas are defined as SA residents temporarily abroad they must provide a tax clearance certificate before they can receive an inheritance from SA, Stephens says.
She says it can be problematic for South Africans who left the country a long time ago with no assets in SA, and who no longer have tax reference numbers or identity documents because you need your ID to apply for a tax reference number.
If they have emigrated, make sure your heirs have placed their emigration on record with the Reserve Bank and have an emigration reference number to ensure they can receive assets abroad.
Stephens says the good news is that no tax clearance is required to obtain emigration approval when “someone has been resident outside SA for longer than five years and they have no SA assets other than the inheritance being externalised”.
The tax your heir will pay on their inheritance depends on where they are living. As sending assets across borders is very complicated, Eastman suggests you consult a specialist adviser.
Stephens says as an SA tax resident you will be taxed on your worldwide assets, even after death, at 20% of the value of the assets up to R30m and 25% on values in excess of R30m.
Be sure to consult a professional and carefully if your heirs are abroad. Failing to do so may cause added stress and complications for your heirs when you are no longer here.