CGT, estate planning and retirement: How to make it all work for you

by , 17 March 2014

When it comes to your retirement, one of the things you need to consider is how you'll plan your estate. But here's the thing most people don't realise, Capital Gains Tax (CGT) places a big spanner in the works for doing this. And that's why you need to explore the tax effects of CGT on your estate plan. But to do that, you first need to know which assets CGT affects and which ones it doesn't…

What is CGT?

CGT, in the simplest of terms, is the levying of a tax on the gains made from the disposal of assets.

But not all assets are affected by this tax. And that’s where this handy list from the Trust Report comes in…

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What assets are excluded from CGT?

Certain assets are excluded from CGT. The most general exclusions are:

  • Your primary residence, provided the capital gain is not more than R1.5 million and the property is smaller than two hectares, owned by an individual or a special trust
  • Your private motor vehicle
  • Personal belongings (art, antiques, clothing, stamp collection) and jewellery • Proceeds from pensions, provident funds, retirement annuity funds and life insurance policies
  • Winnings from lotteries, casinos and prizes (if not a professional gambler)
  • Compensation for injury, illness and defamation
  • Profit (not more than R750,000) from the sale of a small business, pending retirement, ill health and subject to certain conditions
  • Gains made when changing foreign currency back into rands after a trip overseas, e.g. currency left over from your holiday abroad, travellers cheques, travel allowance, etc.

What assets are subject to CGT?

Gains made on the disposal of the following assets will generally be taxed:

  • Main residences owned in the name of a company, close corporation, or Trust
  • Holiday homes or second homes and properties let to tenants
  • A boat exceeding ten metres
  • Caravans
  • An aircraft, the empty mass of which exceeds 450kg
  • Shares, unit trusts and private investments
  • Second hand insurance policies
  • Immovable property
  • Agricultural properties larger than 2 hectares
  • Commercial properties
  • Listed and unlisted shares (including shares in property holding companies)
  • Kruger Rands or other silver or gold minted coins
  • Your primary residence in the case that you expect the future gain to be more than R1.5 million. (Although this seems high, many houses worth say R800,000 now, will have a capital gain of more than R2 million over the next 20 years, in which case that portion of the growth which is more than R1.5 million will be subject to CGT.)
  • Your primary residence if the property’s larger than two hectares
  • Your primary residence if not owned by an individual/s or a special trust
  • Intangible assets, e.g. goodwill, designs, trademarks, copyright, plant, breeders’ rights, models, patents, plans, formulas, processes or similar assets and for which a proprietary interest may be established in terms of South African common law
  • All other assets except those specifically excluded from CGT

So there you have it. When you think about your retirement, you need to consider the best way to plan your estate too. And to do that, you need to know which of your assets will attract CGT and which won’t. Doing this will help you decide if you need a Trust or not.

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