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The truth about death and taxes - CGT still applies AFTER you die!

by , 11 April 2013
Irish entrepreneurs are hoping their voices are heard as they ask for the capital gains tax or CGT that applies to them to be halved from 33% to 16.5%. This comes after the CGT rate was upped from 30% to 33% in the country last December. In South Africa, businesses of all sizes are also doing all they can to pay less CGT - but you're in it for the long run - you'll still effectively be paying CGT after death. Luckily, four types of capital assets aren't affected by CGT when they're donated on death...

In Ireland, there's been a call for a halving of the capital gains tax or CGT for entrepreneurs, says The Irish Examiner.
The reason?
The move would support new business creation and incentivise risk takers brave enough to start their own business by purchasing assets like property.
Because the sale, donation, scrapping, or distributing of your company's assets all counts as capital gains.
So those who inherit your capital assets may have to pay capital gains tax.
Because if you die and leave any capital assets to someone, your deceased estate will pay capital gains tax on the positive difference between the base cost of the assets and the market value of the assets on the date of your death, says Practical Tax Loose Leaf.
That's why you should decrease the base cost of your assets today.
Here's why you should reduce the base cost of your capital assets today, to minimise the amount of CGT that applies when your capital assets are donated on your death…
It's perfectly legal, says FSP Business.
And the person you've left your assets to gets the assets at market value, which is the base cost when the asset is 'disposed of'. 
Because SARS says that if an asset was acquired before the valuation date and disposed of thereafter, CGT will only be payable on the capital gain attributable to the period after the valuation date. 
You can use this to your advantage by only valuing an asset on the valuation date, or by adopting time-apportionment base cost, explains SARS
Luckily, the transfer of some capital assets or disposals IS tax-free on death.
Four capital assets not affected by CGT on death
This includes:
  1. Any assets inherited by a surviving spouse;
  2. Assets left to a public benefit organisation;
  3. Long-term assurance policies like life and endowment policies; and
  4. Any interests in South African pension, provident and retirement annuity funds, says the Practical Tax Loose Leaf.
There you have it. Reduce the base cost of your capital assets now, to reduce the amount of CGT that applies when your capital assets are transferred on death. 

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