Is subjecting taxpayers to estate duty on post-death asset growth appropriate?

In 1789 Benjamin Franklin said that “in this world nothing can be said to be certain, except death and taxes”. He was right about death—but anyone who has had to interpret our tax laws would know that the task is fraught with uncertainty. This article examines whether income tax (including CGT) can be deducted from the net value of an estate for estate duty purposes.

The net value of a deceased estate under the Estate Duty Act 45 of 1955 is equal to the total value of all property included in the estate under Section 3, less the deductions specified in Section 4. The dutiable amount of the estate is equal to its net value, less an abatement of R3.5 million. The abatement is increased by any portion that was unused by a previously deceased spouse. Estate duty is levied at a rate of 20% on the first R30 million of the dutiable amount, and at 25% above that figure.

For income tax purposes, a person’s year of assessment comes to an end on the date of death—and a new entity, the deceased estate, comes into existence. The deceased is deemed to dispose of all assets at market value on the date of death under Section 9HA(1) of the Income Tax Act, with some exceptions, such as assets bequeathed to a surviving spouse. The executor must submit the final tax return for the deceased, as well as tax returns for the estate until the liquidation and distribution account becomes final.

For persons dying on or after 1 March 2016, any income or taxable capital gain derived by the deceased estate must be accounted for by the deceased estate under Section 25. For persons dying before this date, a deceased estate would need to register as a taxpayer only if the heirs or legatees could not be ascertained with certainty, or if it derived a taxable capital gain.

The value of property for estate duty purposes

Section 5(a) of the Estate Duty Act provides as follows in relation to assets disposed of by the executor:

Determination of value of property:

The value of any property for the purposes of the inclusion thereof in the estate of any person in terms of Section 3 or the deduction thereof in terms of Section 4, determined as at the date of death of that person, shall be:

  • in the case of property, other than such property as is referred to in Paragraph (f)bis or the proviso to Paragraph (g), disposed of by a purchase and sale which in the opinion of the Commissioner is a bona fide purchase and sale in the course of the liquidation of the estate of the deceased, the price realized by such sale.

Thus, it is the price realized by the executor that must be taken into account, except when the asset is one falling within Section 5(f)bis or the proviso to Paragraph (g), or if the Commissioner considers the price realized not to be bona fide.

Section 5(f)bis provides that unlisted shares must be taken into account at their value on the date of death of the deceased, subject to a number of valuation rules. The proviso to Paragraph (g) provides that conditions requiring a lesser value to be determined on the date of death must be disregarded unless the Commissioner otherwise directs.

As regards CGT, not only will the deceased person be subject to estate duty on the price realized on the sale of an asset (other than unlisted shares), but the deceased estate will also be subject to CGT on any capital gain realized on such sale. The question arises whether such CGT can be claimed as a deduction against the net value of the estate.

Deduction of income tax:

Section 4 of the Estate Duty Act deals with deductions against the net value of an estate and the relevant paragraphs provide as follows:

Net value of an estate:

The net value of any estate shall be determined by making the following deductions from the total value of all property included therein in accordance with section 3, that is to say:

  • n/a
  • all debts due by the deceased to persons ordinarily resident within the Republic […] which it is proved to the satisfaction of the Commissioner have been discharged from property included in the estate;
  • all costs which have been allowed by the Master in the administration and liquidation of the estate, other than expenses incurred in the management and control of any income accruing to the estate after the date of death.

Meyerowitz notes that the words ‘debt due’ are used in a wider sense of any debts that the deceased was obliged to pay. Section 4(b) would thus apply, for example, to any income tax owed by the deceased person for the period up to and including the date of death, even if the assessment is raised after death.

It is submitted that the CGT attributable to the disposal of assets by the executor falls under Section 4(c) since it comprises a ‘cost of administration and liquidation’ which should be allowed by the Master. Since a capital gain is not income, CGT is not excluded as an expense incurred in the management and control of any income accruing to the estate.

In Van Zyl NO v CIR [1997 (1) SA 883 (C), 59 SATC 105], the court concluded that the words ‘cost of administration and liquidation’ could be interpreted to include post-liquidation income tax under Section 97(2)(c) of the Insolvency Act.

Example CGT and the dutiable value of an estate

  • X died holding listed shares with a base cost of R20 000 and a market value of R100 000. The executor sold the shares for R130 000. Both X and X’s deceased estate are on the maximum marginal CGT rate of 18% (45% × 40% inclusion rate). Disregard the annual exclusion.


  • X is deemed to sell the shares for R100 000 under Section 9HA(1) and will realize a capital gain of R80 000 on which tax of R14 400 is payable.
  • X’s estate will realize a capital gain of R30 000 (R130 000 – R100 000) on which tax of R5 400 is payable.
  • The net value of X’s estate is R130 000 (Section 5(a)) – R14 400 (Section 4(b)) – R5 400 (Section 4(c)) = R110 200.

Trading stock:

Assume in the above example that the asset comprised trading stock rather than listed shares. The deceased would have a tax liability of R80 000 × 45% = R36 000, while the deceased estate would have a tax liability of R30 000 × 45% = R13 500.

Can the tax of R13 500 be claimed against the net value of the estate, given that the net value would include the price realized of R130 000?

Section 4(c) denies a deduction for ‘expenses incurred in the management and control of any income accruing to the estate after the date of death’. Applying the Income Tax Act definition of ‘income’ (i.e., ‘gross income’ less ‘exempt income’ would clearly result in no deduction.

However, the word ‘income’ is not defined in the Estate Duty Act and so bears its ordinary grammatical meaning, taking into account the context in which it appears and the apparent purpose to which it is directed. A sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results or undermines the apparent purpose of the provision.

In CIR v Visser, Maritz J stated the following: “If we take the economic meaning of ‘capital’ and ‘income’, the one excludes the other. ‘Income’ is what ‘capital’ produces or is something in the nature of interest or fruit as opposed to principal or tree.”

On this meaning, income tax on income in the form of dividends, interest, and rent would rightly not qualify for deduction, because it does not form part of the net value of the estate. However, the realization of trading stock held by the deceased would represent the sale of the ‘tree’ and not fall foul of the exclusion.

It might also be argued, depending on the facts, that the executor is simply realizing assets to the best advantage for heirs, and that such realization is not trading.

Such an interpretation would avoid economic double taxation and be consistent with the deduction of CGT.

In summary, a deduction for:

  • Income tax owed by the deceased person up to the date of death qualifies under Section 4(b);
  • CGT on the sale of assets by the executor qualifies under Section 4(c);
  • Income tax on the sale of trading stock, livestock and produce may also qualify under Section 4(c); and
  • Income tax on income derived by the estate in the form of dividends, interest, and rent amongst others (‘fruit from the tree’) does not qualify under Section 4(c).

An amendment to clarify the deductibility of post-death taxes would be welcome. Perhaps it is time to reconsider whether subjecting taxpayers to estate duty on post-death growth in the value of their assets is appropriate, given that the value of these assets on the date of death must in any event be determined for CGT purposes.


  • D Meyerowitz, Meyerowitz on Administration of Estates and their Taxation (10th edition) (2010) in 28.4 (i).
  • Citing Natal Joint Municipal Pension Fund v Endumeni Municipality [2012 (4) SA 593 (SCA) at 604], and Cool Ideas 1186 CC v Hubbard & another [2014 (4) SA 474 (CC) at 484].
  • 1937 TPD 77, 8 SATC 271 at 276.

WRITTEN BY Duncan McAllister

  • Duncan McAllister is a consultant at Webber Wentzel.

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein.  Our material is for informational purposes and should not be construed as financial advice.