Donations Tax in South Africa: What You Can Give and What SARS Taxes

Most people find out about donations tax after they have made the gift. It is one of the few taxes where the person giving money away is the one who owes it, and where the deadline is measured in weeks rather than at the end of a tax year.

The rules themselves are short. It is the exemptions, and the order in which they apply, that decide whether a gift costs you anything.

The annual exemption

Every natural person may donate R100,000 a year free of donations tax. That is a total across all recipients in a tax year, not per person — three gifts of R40,000 to three children is R120,000, and the last R20,000 is taxable.

Above the exemption the rate is 20%, rising to 25% on the cumulative value of donations above R30 million.

Two things trip people up:

• The donor pays, not the recipient. A gift is not income in the receiver's hands and they declare nothing. If the donor fails to pay, SARS can recover it from the recipient — but the primary liability is the giver's.
• It is due quickly. Donations tax must be paid by the end of the month following the month in which the donation took effect, using form IT144. It does not wait for your annual return, and late payment carries interest.

What is exempt regardless of amount

The R100,000 is the general allowance. Several categories sit outside it entirely:

• Donations between spouses. Unlimited, and this is the single most useful exemption in ordinary estate planning. Spouses married in or out of community of property can move assets between themselves without donations tax.
• Donations to approved public benefit organisations with section 18A status. These may also give you an income tax deduction — a different benefit, with its own limits.
• Bona fide maintenance payments. Supporting a dependant is not a donation. Paying your child's school fees or supporting an elderly parent is maintenance, not a gift, provided it is genuinely support rather than a transfer of wealth dressed as one.
• Donations that a court orders, and certain donations to the state.

Where an innocent transaction becomes a donation

This is the part that catches people, because no one involved thinks they are making a gift.

Selling something below its value. If you sell a property worth R2 million to a family member for R1.2 million, SARS can treat the R800,000 difference as a donation. The technical term is a disposal for inadequate consideration, and it applies whether or not anyone intended a gift.

An interest-free or low-interest loan to a trust. Lending money to a trust without charging interest was for years the standard way to move growth out of an estate. Section 7C now treats the interest you did not charge as an ongoing deemed donation each year, measured against the official rate. It is one of the most common reasons an otherwise ordinary family trust generates a donations tax bill.

Waiving a debt. If you lend a family member money and then tell them not to bother repaying, the amount released is a donation in the year you release it.

Paying someone else's expenses, where it is not genuine maintenance.

Donations tax and estate duty are two halves of one system

Donations tax exists to stop people avoiding estate duty by giving everything away before they die. The two are deliberately aligned, and you cannot plan one without the other.

Estate duty is charged at 20% on the dutiable value of an estate above the R3.5 million abatement, rising to 25% above R30 million. A gift made during your lifetime reduces your estate — but if it exceeded the annual exemption, you paid 20% on the way out anyway.

The genuinely efficient move is usually the boring one: use the R100,000 a year, every year, consistently. Over a decade that is R1 million moved out of an estate at no tax cost, and it compounds in the recipient's hands rather than yours.

The spousal exemption is the other lever — and the abatement is portable between spouses, so the first-dying spouse's unused abatement rolls over to the survivor.

Capital gains tax does not disappear

A donation is a disposal for capital gains tax purposes, at market value, even though no money changed hands.

Give away a share portfolio that has doubled and you trigger CGT on the growth, in your hands, in that tax year — on top of any donations tax. The annual CGT exclusion is R50,000. Work out both before deciding a gift is cheaper than an inheritance; sometimes it is not.

The exception worth knowing: donations to a spouse roll over at base cost, so no CGT arises on the transfer itself.

A worked example

Take a parent who wants to help two adult children buy homes, and has R600,000 available.

Done in one year: R600,000 in a single tax year uses the R100,000 exemption and leaves R500,000 taxable at 20% — a donations tax bill of R100,000, payable by the end of the following month. The children receive R600,000 and owe nothing; the parent is R700,000 out of pocket.

Spread over six years: R100,000 a year, for six years, to either child in any split. Total donations tax: nil. The children receive the same R600,000.

Using both parents: where there are two spouses, each has their own R100,000 exemption, so the same R600,000 clears in three years rather than six — and moving money between the spouses first is itself exempt.

The only difference between a R100,000 tax bill and no tax bill is timing and paperwork. That is why the practical advice is so unexciting: start early, give annually, keep records.

What happens if you get it wrong

Donations tax is self-assessed, which means SARS does not send you a bill — the obligation to declare and pay sits with you.

If you miss it, interest runs from the date the payment was due, not from the date SARS notices. Where a donation surfaces years later in an estate, the executor has to deal with it, and the estate pays the interest that accumulated in the meantime.

The commonest discovery point is a property transfer. A conveyancer handling a below-value sale between family members will raise the donations tax question, because the difference between price and market value is visible on the face of the transaction. Trust loans surface the same way when the annual financial statements are prepared.

None of this is a reason to avoid gifting. It is a reason to do it deliberately, in writing, within the exemption where possible — and to price the tax in honestly when a gift genuinely needs to exceed it.

Practical points

1. Keep a written record of every gift, with the date and amount. The exemption is annual and cumulative, and you need to be able to show where you stand.
2. Do the paperwork on time. IT144, by the end of the following month.
3. Value it properly. Where the gift is not cash — property, shares, a vehicle — the market value at the date of donation is what counts.
4. Get advice before lending to a trust. Section 7C is not intuitive and the liability recurs annually.
5. Check whether a gift is really maintenance. Genuine support of a dependant is not a donation, and framing it correctly at the time is easier than arguing it later.

Frequently asked questions

Do I pay tax on money my parents give me?

No. The recipient of a donation declares nothing and pays nothing. The donor is liable for any donations tax due.

Does the R100,000 reset every year?

Yes, each tax year, and it does not carry forward. An unused allowance is lost on 28 February.

Are companies and trusts also allowed R100,000?

No. The R100,000 exemption is for natural persons. Companies and trusts have a different treatment, and donations by a company are generally taxable from the first rand.