Many people have heard that you can give away R100 000 per year without paying tax. This is true, and it can be a useful part of passing wealth on to children or helping family members financially. But there is an important detail that often gets misunderstood.
Here’s what actually happens:
– Every individual is allowed to donate up to R100 000 per tax year (1 March to 28 February) without paying donations tax.
– You can give this to anyone: children, relatives, or even friends.
– Each spouse has their own R100 000 limit, so a couple can give R200 000 per year tax-free.
So far, so good.
However:
Those tax-free donations aren’t “invisible” when you pass away.
When someone dies, the value of their estate is calculated for estate duty. At this point, SARS looks at any tax-free donations made during their lifetime and adds the value back to the estate calculation.
This can surprise families who assumed that the donations were permanently outside the estate.
So why bother donating during your lifetime?
Because even though the donations are added back into the estate, the estate still gets a large tax-free allowance known as the R3.5 million estate duty rebate. In many cases, this allowance is more than enough to absorb the added-back donations, meaning no estate duty is triggered.
In short:
– Yes, the R100 000 per year donations are added back to your estate when you pass away.
– But, the R3.5 million estate duty allowance usually covers the value, especially for smaller to medium-sized estates.
– The tax benefit is often realised more clearly on the second spouse’s death, when estate duty is finally calculated.
What’s the practical takeaway?
If your long-term goal is to transfer wealth to the next generation, giving smaller amounts gradually during your lifetime can still be very useful, especially if started early.
It’s not about avoiding tax in the moment. It’s about planning the bigger picture.
If your estate may eventually be above the R3.5 million threshold, or if you want to explore options like trusts or structured gifting, a conversation with your accountant or financial planner can help fine-tune the details.