Over the years, different tax implications have been applied to trusts, with the latest being an increase from 27,3% of the gain to 32,8%.
The formula for calculating CGT as set out in the tax legislation is quite complicated but basically comes to a percentage of the total profit made by a taxpayer. The previous rate for natural persons was 13,7%, 18,6% for companies and close corporations, and 27,3% for trusts. From 1 March 2016 the new rate is 16,4% for natural persons, 22,4% for companies and close corporations, and 32,8% for trusts.
In addition to the increase in CGT, estate duty cannot be avoided as it is proposed that donations or loans to the trust must be included in the estate of the founding member, which eliminates the ability to avoid paying taxes on assets passed to the trust, said Steward.
Lastly, with regard to the budget, the implication of increases in transfer duty on properties above R10m from 11% to 13% could be a slight retardation in price rises in the top end of the market, where values have grown exponentially in recent years. The aim of this budget, it seems, is for it not to have a dramatic effect on the lower and middle end of the market which is usually the hardest hit in times of economic uncertainty.
“They previously played a huge role in avoiding estate duty and transfer duties on passing property from one family member to another, but the government is tightening up on this and one can expect that there will be taxes placed on trusts going forward.”
If there is a question as to whether to buy property or place assets into a trust, this should be a decision made in conjunction with a tax lawyer or financial advisor, who would be able to make a learned decision on a family’s financial standing.