Why donations tax matters in Estate Planning
Under South African tax law, donations tax applies to gratuitous transfers of value made during a person’s lifetime. Before the 2026 Budget, individuals could donate up to R100 000 per year tax‑free. From 2026, the exemption increases to R150 000 per tax year, offering greater flexibility for lifetime planning. Amounts exceeding the threshold remain subject to tax at:
20% on cumulative lifetime donations up to R30 million, and
25% on donations beyond R30 million.
Reducing the dutiable value of your estate
Donations made within the annual exemption reduce the value of your estate, lowering the base on which estate duty is calculated. Currently:
Estate duty is levied at 20% on estates up to R30 million, and
25% on the value above R30 million.
By consistently donating up to the annual exemption, individuals and families can meaningfully reduce future estate duty. Over 10 years:
- An individual can transfer R1.5 million tax‑free.
- A married couple can transfer R3 million tax‑free.
This long‑term, incremental reduction can significantly decrease the taxable estate at death.
Maximising benefits in trust structures
Trusts remain a central estate planning tool, and the increased exemption enhances their effectiveness.
A common strategy involves transferring assets to a trust via a loan account. Each year, the donor can reduce the loan balance by applying the R150 000 exemption, gradually shifting wealth out of the estate without triggering donations tax.
This approach:
1. Ensures the asset and its growth fall outside the donor’s estate,
2. Reduces exposure to estate duty,
3. Supports long‑term intergenerational planning.
4. Care must be taken, however, to manage the interaction with section 7C of the Income Tax Act 58 of 1962, which deals with deemed donations arising from interest‑free or low‑interest loans to trusts.
Moving asset growth outside the Estate
Once an asset is validly donated and transferred out of your name, it no longer forms part of your estate for estate duty purposes. Importantly, all future growth on that asset is also excluded.
This compounding effect is one of the most powerful aspects of lifetime donations: the earlier the transfer occurs, the greater the long‑term estate duty savings.
Practical considerations for using the exemption effectively
To maximise the benefits of this increased exemption, keep the following in mind:
1. Plan early and don’t skip years: Annual strategies compound over time. Consistency is key.
2. Ensure proper documentation: A donation must meet legal formalities and, where required, appropriate tax declarations must be filed.
3. Be mindful of section 7C, Loans to trusts may trigger deemed donations; the annual exemption can help offset these, but professional planning is essential.
4. Combine with other Estate Planning tools. The exemption works best as part of a holistic plan that may include:
- Trusts,
- Life insurance structuring,
- Spousal deductions,
- Residence exclusions and CGT planning,
- Business succession planning.
The increase in the annual donations tax exemption is more than a minor fiscal adjustment. It provides a dependable, repeatable way to transfer wealth during your lifetime while reducing estate duty exposure. When applied thoughtfully and paired with other estate planning tools, this exemption becomes a powerful mechanism for preserving and passing on wealth tax‑efficiently.
For tailored implementation and compliance, it is advisable to consult with an estate planning specialist or tax professional.
Disclaimer: This article is the personal opinion/view of the author(s) and does not necessarily present the views of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever, and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken based on this content without further written confirmation by the author(s).
