When spouses transfer assets between themselves, it is generally done for estate planning purposes.
Estate planning involves the management and disposal of assets during a person’s lifetime and after death.
It is important to plan your estate to ensure that your assets are distributed according to your wishes and in a tax-efficient manner.
There are various methods available, each with its own benefits and drawbacks.
In this article, we will explore the tax implications of transferring assets between spouses and the various methods available to do so.
Understanding Spousal Transfers
In South Africa, when assets are transferred between spouses, there are no tax implications.
This is because there is no capital gains tax or donations tax on transfers between spouses. This means that spouses can transfer assets to each other without incurring any tax liability.
Transferring Assets during Marriage
There are several ways to transfer assets between spouses during marriage. These include:
1. Outright Transfer
An outright transfer involves transferring an asset from one spouse to another without any conditions.
This type of transfer is often used to transfer low-value assets such as household items or personal effects.
A donation involves transferring an asset from one spouse to another with the intention of donating it. In South Africa, donations tax is levied on any donation made.
However, when the donation is made between spouses, there is no donation tax payable.
3. Antenuptial Contract
An antenuptial contract is a legal agreement entered into by spouses before they get married. This contract determines how their assets will be divided in the event of a divorce or the death of one of the spouses.
It is important to consult a lawyer when entering into an antenuptial contract to ensure that the contract is legally binding.
Transferring Assets after Marriage
If spouses wish to transfer assets after marriage, there are two options available to them:
Section 58 Agreement
A section 58 agreement is a legal agreement entered into by spouses after they are married. This agreement allows spouses to change the matrimonial property system that they are married in.
For example, if spouses were married in a community of property, they can change to a marriage out of the community of property with accrual.
Capital Gains Tax Roll-over Relief
When spouses transfer assets to each other, there may be capital gains tax implications. However, when the transfer is done in terms of the Income Tax Act, there is capital gains tax roll-over relief available.
This means that the spouse receiving the asset will take over the base cost of the asset from the spouse transferring the asset.
Transferring assets between spouses is an important part of estate planning.
By understanding the various methods available, spouses can ensure that their assets are distributed according to their wishes and in a tax-efficient manner.
It is important to consult a financial advisor or tax specialist when considering transferring assets between spouses to ensure that the transfer is done correctly.
RELATED POST: Tax implications of investing in venture capital companies in South Africa