In his recent budget speech, Minister Gordhan made the following proposal:
“An important role of the tax system is to reduce inequality. Some taxpayers use trusts to avoid paying estate duty and donations tax. For example, if the founder of a trust sells his or her assets to the trust, and grants the trust an interest-free loan as payment, donations tax is not triggered and the assets are not included in his or her estate at death. To limit taxpayers’ ability to transfer wealth without being taxed, government proposes to ensure that the assets transferred through a loan to a trust are included in the estate of the founder at death, and to categorise interest-free loans to trusts as donations. Further measures to limit the use of discretionary trusts for income-splitting and other tax benefits will also be considered.”
There are a number of concerns around this proposal, the main being that we cannot see how the assets can be included in the founder's or even the donor's estate, as he/she might possibly have long predeceased the effective date of legislation. In all probability, this should be the "lender’s estate". The entire proposal requires careful consideration, and we will keep you informed with updates.