165 - Inheritance implications for children living overseas

Question: I have children who are living overseas.  They never emigrated officially, and are now citizens of the countries they are resident in.  They have absolutely no assets in, or income from, South Africa, and never have had, ever since they left South Africa?

What happens when, they inherit from a South African parent's deceased estate?

Answer: I suspect that there are a lot of children that fall into this category – they are living overseas but do not realize that they are still regarded by the authorities as South African residents as they have not broken their SA tax residency.

It is important to understand the difference between SA residents and non-residents.

SA Residents

SA residents are taxed on their worldwide income, regardless of where it arose.  They will also be liable for CGT on the disposal of all assets, no matter where they are in the world.

Non-SA Residents

Non-residents are taxed on SA sourced income only and will be liable for CGT only on the disposal of fixed property and property-rich shares in SA.  They will not be liable for SA donations tax or estate duty.

Now regarding the inheritance, if they have a barcoded South African ID, the process is actually quite simple.  They could simply convert their South African inheritance into the currency of their choice and repatriate the funds using their annual discretionary allowance.

If, however, they do not have a barcoded ID, then they would need to apply to have themselves no longer regarded as being ordinarily resident in South Africa. This is probably a good course of action if they do not intend coming back to South Africa.  It is always better to have certainty when it comes to finances than to follow a fingers- crossed approach and possibly create problems in the future.

They should have a chat with someone who specializes in this field to ensure that they get the right documentation together understand the tax implications.

Some of the documents they would need would be a passport with an exit stamp from South Africa as well as a foreign residency tax certificate.  They would also need the various FICA documents.

As I mentioned in an earlier column, they will be liable for capital gains tax on the assets that they own on the day before they broke their South African tax residency.  If your children chose the date that they broke residency as the day they originally left South Africa, then there will probably not be any capital gains tax payable. Just to be safe, they should speak to someone who can give them insightful advice.

Kenny Meiring MBA CFP ® is an independent financial adviser who helps people put investment and risk structures in place to live wonderful lives.  You can contact him on 082 856 0348 or at Financialwellnesscoach.co.za. Please send your questions to kenny.meiring@sfpwealth.co.za