Increased donations tax exemption: Greater flexibility for interest-free loans to trusts
In South African estate and trust planning, interest-free loans from individuals to trusts remain a popular funding method. An individual lends money to a trust, which uses the funds to acquire assets. Because no interest is charged, the foregone interest is treated as a deemed donation under section 7C of the Income Tax Act 58 of 1962, potentially attracting donations tax. However, the annual exemption allows a portion of this deemed donation to be tax-free.
Effective 1 March 2026, the annual donations tax exemption for natural persons has increased from R100,000 to R150,000, as announced in the 2026 Budget Review. This 50% increase provides meaningful additional headroom for tax-efficient wealth transfers into trusts. It reflects the National Treasury’s effort to account for inflation while retaining protections against abuse and provides welcome breathing space for legitimate intergenerational wealth planning in the current tax environment.
The change directly expands the capacity for interest-free loan funding. Previously, at prevailing official interest rates, an individual could typically provide around R1.2 million in interest-free funding before the deemed annual donation exceeded the R100,000 exemption. With the new R150,000 limit, this rises to approximately R1.8 million per individual. For a married couple, the combined potential now reaches roughly R3.6 million (R1.8 million each), a significant 50% increase over the prior threshold. The precise amount varies with the official interest rate at any given time (repo rate plus one percentage point), but the adjustment offers considerably more scope for funding trusts without immediate donations tax liability.
This development may influence funding strategies to personal trust structures. Individuals who previously relied mainly on equity contributions to underlying investment companies (which often involve growth attribution in personal estates, potential capital gains tax, or dilution of control) may now have additional options using interest-free loans. Loans allow value to be transferred into the trust structure without attaching mandatory growth elements, preserving greater flexibility in estate planning.
While the increased exemption is advantageous, the optimal approach depends on individual circumstances, including the trust’s objectives, existing funding arrangements, overall asset allocation, and potential future legislative changes. Interest-free loans must still comply fully with section 7C, including proper documentation and annual reporting of deemed donations.
We recommend consulting a qualified estate planning or tax advisor to assess whether your specific trust and estate structure could benefit from this change and to ensure all arrangements remain compliant and aligned with your long-term goals.
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