7 March 2024

Walking down the main street of a beautiful little town, you find an exquisite painting of the surrounding area.  You immediately feel the urge to purchase the item, but have you considered in which part of your family’s legal structures you might purchase the item?

Let’s assume the following:

  • The item’s purchase price is R100 000;
  • The item’s value 20 years from now will be R1 000 000;
  • Included in your family’s legal structure is a trust;
  • You will be able to donate the item to the trust;
  • Should you pass away 20 years from now, your marginal income tax rate will be 45% and your estate duty rate will be 20%;
  • You do not leave the item to a spouse;
  • Executor fees in your estate at maximum rate of 4.025% (3.5% plus VAT);
  • Your available rebates and abatements will already be utilised prior to considering this item.

The following options are available:

Option 1: Purchase the item in your own name

Upon your passing, no capital gains tax will be applicable assuming you bought the item for your personal enjoyment.  There will however be estate duty of R200 000 associated with the item.  The item will also attract executor fees of R40 250 bringing total taxes and fees to R240 250.

Option 2: Purchase the item in a trust which sells the item

The trust’s base cost for the item, will be R100 000, resulting in a taxable capital gain of R900 000 in the trust. You loan the trust the funds for the purchase and this is repaid prior to your passing.

Option 2a: Trustees sell item upon your passing and the capital gain is taxed in trust

The trust’s inclusion rate for the gain is 80% which is taxed at 45%, resulting in tax payable by the trust of R324 000 (R900 000 x 80% x 45%). No estate duty applicable to this option.

Option 2b: Trustees sell item upon your passing and capital gain vested to beneficiaries

The trustees distribute the capital gain to South African beneficiaries, and this is then taxed in their personal capacities. Assuming they are also on the maximum marginal income tax rate of 45%, the total tax payable by all the beneficiaries in their personal capacity will be R162 000 (R900 000 x 40% x 45%).

Option 3: Purchase the item in a trust which retains the item

No taxes are payable and the trustees can continue to administer the item in accordance with the trust deed.  The intention of the purchaser of the item influences the resultant taxes associated with the item and also which entity within your family’s legal structure will work best for the acquisition.  The advantage of no capital gains tax being applicable to the item upon your passing under Option 1, is negated by the estate duty and executor fees associated with the estate.

Even under Option 2b the transfer of wealth within the family is better than under Option 1.  Should your intention however be that the item be retained within the family, Option 3 is the clear winner.

Please consider your options carefully.  We are always willing to help you with your considerations.


Contact us for a consultation at info@auroprofessional.com or 021 879 3100




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