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79 - Navigating the costs of transferring ownership of inherited property

Question: My mother has been living in the same house for 60 years and has left it to me in her will. It is valued at R2.3-million. She is happy to pass on ownership while she is still alive. Will there be any adverse financial implications?

Answer: A number of costs are incurred when one transfers ownership of a property through inheritance or donation.

Donations tax or estate duty

Donations tax is levied at the same rate as estate duty, namely 20% for most people. On the surface, there should be no difference between donations tax and estate duty. 

However, upon your mother’s death, an estate duty abatement of R3.5-million will come off the estate before estate duty is levied. (This could be higher if the full abatement was not used when your father died.)  If your mother has few other assets, there might be no estate duty. 

With a donation, there is a concession of only R100,000, so R2.2-million will attract 20% donations tax. 

Transfer duty

When a family member inherits a house, no transfer duty is payable, but it is with a donation. 

Capital gains tax

Capital gains tax is payable when the property changes hands, via inheritance or donation. However, the first R300,000 of the gain is excluded in the event of death and only R40,000 in the event of the donation. 

The R2-million primary residence exclusion will probably mean no CGT will be payable under either situation. 

Executor fees

Executor fees of 4.025% are typically levied when a property is transferred in the event of a death. If the property is donated before the time of death, it will not be part of the estate and would not attract these fees. 

I cannot give you a categorical answer without a full financial picture. But it looks as though you would pay less tax by going the inheritance route.