ZAR500k early inheritance from a parent

[ann58]

As a sort of early inheritance my mother wants to give me and my sister each 500k with the caveat that we invest it for the future.

Do any of you know what the best options are to:

a) avoid paying a lot of tax on it?
b) what you would do with it for a long term investment?

I am in my mid 30s and have only contributed to an RA and TFSA for the past 3 years as I am self employed and made some poor financial decisions in the past.

 

[vancouverguy]

@ann58 Is your mother a SA citizen / tax resident?

If she is and gives more than R100k pa away, she is liable for donations tax of 20% on the amount over R100k via SARS IT144 form. This is not applicable between spouses.

In your case that would be R180k tax.

What she can potentially do is lend you and your sister that money, and then gift you an amount below R100k pa which you can use to pay off the loan over time. You need a proper loan agreement etc. should SARS ask about your source of funds and it would take you 10 years at least via this method.

 

[ann58]

@vancouverguy Thanks - Yes, she is an SA citizen and tax resident.

I don't follow. How would we pay back 500k with under 100k?

 

[numbers511to31]

@ann58 Each year she donates 100k and you turn around and pay off the “loan“ no money is really changing hands it's fancy accounting. As to your 1st question go see a reputable financial planner.

 

[ann58]

@numbers511to31 Ah ok. Thank thank you. And yes I plan to do that

 

[cami777]

@numbers511to31 problem with this is a loan has to attract interestand if I remember correctly you can't donate a loan, although what the law says and whats common practice often differs on finer lines.

 

[vancouverguy]

@cami777 It does not, but it easily can by extending the same structure a year to cover the interest.

 

[resjudicata]

@ann58 Take 100k a year instead. Put 36k into tfsa each year and the rest in money market if you want no risk, or unit trusts if you want a little bit more risk.

I would also spend at least 10k per year on crypto. I spend at least 5% of my “investment” cash on crypto each month.

 

[ell3bee]

@resjudicata DONT BUY CRYPTO

 

[resjudicata]

@ell3bee 5%. Well worth it if you hold for years.

 

[vancouverguy]

@resjudicata Maybe. Nobody knows. No long term data. If your increase in value relies only on someone buying it for more later it's speculation

 

[resjudicata]

@vancouverguy It's definitely speculation. Which is why I put 5% in, and not 50%.

 

[ericfocus]

@vancouverguy Tax practitioner ?

 

[vancouverguy]

@ericfocus I am not if that's what you're asking. I am a user of such structures and there is a court judgement in SA on an identical arrangement.

 

[lamah]

@vancouverguy Saving this. 20% on top of the >20% taxes the parent had to pay while accruing the 500k. If this was Norway then sure take what you must, but all that money going to our government, hell nah

 

[vancouverguy]

@lamah I believe it the reasoning is to avoid bypassing of estate duty by 'gifting' inheritance before death.

But yeah. Our politicians need to pay for six armed VIP officers in black BMWs to drive around and assault us somehow

 

[ultimateveritatis]

@vancouverguy Yes i came to say this, she should gift you 100k over the course of 5 years.

 

[melancthon1521]

@ann58 Transferring the money straight up is going to be a liable for donation tax. If you guys are not planning on using it immediately, I'd recommend your mom investing the R1mil and using the interest to pay for a death policy on her name. Return on investment on death policies are better than short term investments and is not taxable or part of the estate aslong as there are beneficiaries to the policy.

The original R1 mil wil still form part of an estate but 3% estate cost < 20 % donation tax.

 

[arrabon]

@ann58 We have been looking into this too. And the best option we found is for your parent to give you a loan of 500K, and for you to pay it back at a very very slow rate. Personally, I plan to put it into property, as the asset value keeps up very well with inflation, and you can also rent it out, and use a portion of the income to "repay" the loan.

Another option is for your mom to buy the property on your behalf, but in the name of a company that you are a director of. This is slightly more complicated, and I'm not too sure of the details, here. Still investigating this option.

All the best.

 

[stublackwell]

@ann58 Looks like my inheritance just got a bit more complicated... thanks, mom!