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Stanley Broun

Head of Fiduciary and Tax

Comprehensive estate and tax planning is essential to preserve and transfer wealth from one generation to the next, especially if some or all your beneficiaries have moved abroad. There is a myriad of complexities to consider, however, including tax residency, local and offshore trust structures, and punitive taxes imposed by some jurisdictions. How can you ensure you leave an accessible legacy for those who come after you?


Even if they haven’t formally ceased their tax residency with the South African Revenue Service (SARS), many South Africans who live abroad are of the view that if they left several years ago, they’ve automatically given up their tax residency in this country and will no longer have to pay taxes here. They’re under the misconception that they can transfer funds abroad or receive an inheritance without obtaining a tax clearance certificate.

To ensure a smooth transfer of intergenerational wealth without complications, it is crucial that your beneficiaries regularise their affairs with SARS. If they haven’t formally placed the cessation of their South African tax residency on record with SARS, they’ll first have to obtain the necessary clearances from SARS before they can externalise their inheritance offshore. This can be a cumbersome, not to mention costly, exercise.

After your beneficiaries have formally ceased their South African tax residency and paid any exit taxes (including capital gains tax), they’ll no longer be taxed in South Africa on their worldwide income but only on locally sourced income, for example, rental income.


To complicate matters further, many South Africans are beneficiaries of local trusts. In cases where a trust has been set up by parents or grandparents for the purposes of intergenerational planning and preservation of wealth, beneficiaries may not even be aware of their status as such. We can’t emphasise enough the importance of honest and open communication between generations – the financial impact can be significant if decisions about wealth transfer plans are made without the relevant family members’ full knowledge.

Then there are also implications if beneficiaries living abroad are in need of financial assistance, and the trustees authorise trust distributions to these beneficiaries. When a capital gain is distributed to a non-SA resident trust beneficiary, the conduit principle (shifting the tax burden to the beneficiary) will not apply and the trust will pay the taxes at a higher effective rate of 36%.


Punitive taxes imposed by some other jurisdictions present a further potential challenge. If your beneficiaries are living in the US, UK or Australia and receive distributions from foreign trusts, including South African trusts, those countries may hit them with punitive taxes. If a local or an offshore trust has beneficiaries in these jurisdictions, it’s imperative to obtain expert advice before any distributions are considered.

In broad terms:

  • When an Australian resident beneficiary receives a capital distribution consisting of current or historic capital gains from a South African trust, the capital distribution has to be included in assessable income in Australia.
  • In the case of a US tax-resident beneficiary (typically a US citizen or green card holder), the entire distribution could become payable to the US Internal Revenue Service (IRS) as tax.
  • In the UK, the rules pertaining to the nature and composition of distributions are extremely complex. This may result in additional taxes arising in the hands of UK beneficiaries if the trustees have not kept a careful record of historical income and gains, and kept income and gains separate.

To complicate matters further, the US Foreign Accounts Tax Compliance Act (FATCA) requires trustees or the relevant financial institution managing the trust assets to report to SARS that a US resident or green card holder is a beneficiary of a trust, and SARS will report the same to the IRS.

Similarly, resident beneficiaries may be subject to certain Foreign Bank Account Report (FBAR) requirements directing them to declare to the IRS if they have funds available outside the US.

In terms of the Common Reporting Standards (CRS), the details of settlors and beneficiaries of trusts must be recorded, and this information is available to all CRS member countries, including South Africa, Mauritius, the Channel Islands, Australia and the UK.

Besides setting up a trust, another option for transferring wealth to the next generation is simply to bequeath assets directly by way of a last will and testament. Again, it’s important to understand all the implications. If your children have not ceased their South African tax residency with SARS, they’ll only be allowed to transfer their inheritance offshore after obtaining tax compliance status from SARS.


It should be clear that intergenerational estate planning when beneficiaries live abroad can be fraught with complexities. There is no one-size-fits-all solution. Everyone’s personal circumstances, and therefore estate plans, are unique and it’s crucial to seek professional advice in order to ensure a smooth transfer of your wealth to the next generation.

If you need any information or assistance with regard to any aspect of estate planning, please contact Stanley Broun at

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