usufructs calculation of transfer duty

Introduction

The definition of a usufruct is a legal right given by an owner to someone who is not the owner, to use the owner’s property for a certain period, usually for the remainder of that person’s life.

Rights and Obligations of a Usufructuary

While the usufructuary can rent the property out, they are not allowed to sell it or bequeath it to another party.

The usufructuary also has obligations and responsibilities in regard to the property. He/she should ensure that the property is not damaged or altered in any way and at the end of the stipulated period, the usufructuary must hand the property back over to the rightful owner or heirs.

The usufruct must be used for its intended purposes, and the usufructuary is legally bound to act as a diligent owner that may not misuse the property. The usufructuary is also responsible for paying the property rates and general day-to-day costs of maintaining it. He or she is not obliged to do any extensive repairs that result from normal wear and tear or daily use. While there is no obligation for the usufructuary to insure the home against storm, fire or other such damage, it is advisable and in his/her own interest to do so.

In summary:

  • can utilize the property personally;
  • can rent out the asset;
  • must maintain the asset;
  • must pay the rates and taxes, water and electricity and levies on fixed property.

Rights and Obligations of the Bare Dominium holder

Can expect that the Usufructuary maintain the asset.

Is responsible for short term insurance but may arrange with the usufructuary to pay the insurance premiums.

How is a Usufruct calculated?

Example

Man died and bequeathed his fixed property to his son (Aged 31 years) subject to a usufruct in favour of his wife (Aged 54 years).

Calculation of value of usufruct at creation of usufruct: Value of fixed property at creation of the usufructR 800 000.00
Age of wife at next birthday55 years
Factor (Female)7.69355
Value of usufruct thus: 800 000.00 X 12% X 7.69355(Section 4q rebate)R 738 580.80
Value of bare dominium (Value of fixed property less value of usufruct) R 800 000.00 – R 738 580.80 =R 61 419.20
WIFE DIED 9 YEARS LATER AT THE AGE OF 63 YEARS.
Son is now 40 years old.
Calculate the value of the usufruct which devolves upon the son for estate duty purposes:
The value of the property at present:R 1 000 000.00
Age of son next birthday = 41 years Factor (Male) 8.01067 Value of usufruct which passes over to son: 1 000 000.00 X 12% X 8.01067 = (Possible dutiable amount)R 961 280.40
Calculation of the value of the usufruct in terms of the second saving clause of Section 5(1)(b) of the Estate Duty Act:
Value of the property at termination of the usufruct, less value of bare dominium at creation of the usufruct, thus: R 1 000 000.00 less R 61 419.00 = (Possible dutiable amount)R 938 580.80
The lower value is accepted, namelyR 938 580.80
EXAMPLE: ESTATE DUTY ADDENDUM
Total assets as per Liquidation accountR 4 000 000.00
Less: Total liabilitiesR 160 000.00
R 3 840 000.00
Add: Value of usufruct as calculated above in terms of Section (Art 5(1)(b) of the Estate Duty Act
Net value of the estate
Less: Section 4A rebate
Net dutiable estate Estate Duty payable: R 1 278 580.80 X 20%
R 938 580.00
R 4 778 580.00
R 3 500 000.00
R 1 278 580.00 R255 716.16
ESTATE DUTY IS PAYABLE AS FOLLOWS:
The bare dominium holder:
938 580.80       X 255 716.16 =
4 778 580.80                1
R 50 226.27
The estate:
3 840 000.00    X 255 716.16 =
4 778 580.80            1
R 205 489-89
R 255 716-16

Calculations for the purposes of the valuation of annuities or of fiduciary, usufructuary or other limited interests in property in the estate of any person who died or dies on or after 1 April 1977 shall be made in accordance with the following Table

THE EXPECTATION OF LIFE AND THE PRESENT VALUE OF R 1 PER ANNUM FOR LIFE CAPITALIZED AT 12 PER SENT OVER THE EXPECTATION OF LIFE OF MALES AND FEMALES OF VARIOUS AGES.

Age next birthday  Male Expectation of lifeFemale Expectation of lifeMale Present value of R1 per annum for lifeFemale Present value of R1 per annum for lifeAge
064,7472,368,327918,331050
165,3772,748,328288,331141
264,5071,878,327768,330912
363,5770,938,327148,330643
462,6369,978,326448,330334
561,6969,028,325678,329995
660,7468,068,324808,329616
759,7867,098,323818,329187
858,8166,118,322718,328698
957,8365,148,321468,328159
1056,8564,158,320078,3275310
1155,8663,168,318498,3268411
1254,8762,188,316738,3260812
1353,9061,198,314808,3252213
1452,9360,218,312658,3242714
1551,9859,238,310298,3232015
1651,0458,268,307708,3220316
1750,1257,298,304898,3207117
1849,2156,338,301808,3192618
1948,3155,378,298418,3176419
2047,4254,418,294718,3158420
2146,5353,458,290618,3138321
2245,6552,508,286138,3116122
2344,7751,548,281178,3091223
2443,8850,588,275648,3063324
2543,0049,638,269598,3032625
2642,1048,678,262748,2998126
2741,2047,718,255168,2959527
2840,3046,768,246778,2917128
2939,3945,818,237378,2869729
3038,4844,868,226948,2817030
3137,5743,918,215388,2758331
3236,6642,968,202578,2693032
3335,7542,028,188368,2621033
3434,8441,078,172628,2540034
3533,9440,138,155368,2450935
3633,0539,198,136478,2351736
3732,1638,268,115588,2242637
3831,2837,328,092748,2119938
3930,4136,408,067818,1986639
4029,5435,488,040308,1838640
4128,6934,578,010678,1676241
4227,8533,677,978448,1498342
4327,0232,777,943448,1301243
4426,2031,897,905478,1088144
4525,3831,017,863808,0852745
4624,5830,147,819248,0595646
4723,7929,277,771098,0311947
4823,0028,417,718438,0002648
4922,2327,557,662367,9661749
5021,4726,717,602017,9295050
5120,7225,887,537137,8896751
5219,9825,067,467487,8464652
5319,2624,257,393877,7996553
5418,5623,447,316317,7483454
5517,8622,657,232347,6935555
5617,1821,867,144147,6336356
5716,5221,087,051787,5689657
5815,8620,316,952257,4992758
5915,2319,546,850047,4232159
6014,6118,786,742067,3413560
6114,0118,046,630107,2545761
6213,4217,306,512327,1602062
6312,8616,586,393017,0604663
6412,3115,886,268226,9553764
6511,7715,186,137896,8416165
6611,2614,516,007266,7239366
6710,7613,855,871656,5989367
6810,2813,205,734036,4663568
699,8112,575,591826,3281869
709,3711,965,451656,1846670
718,9411,375,307756,0360771
728,5410,805,167445,8827872
738,1510,245,024375,7222273
747,779,704,878765,5574374
757,419,184,734905,3889375
767,078,684,593545,2172776
776,738,214,446635,0467977
786,417,754,303093,8709278
796,107,314,158984,6938979
805,826,894,024404,5164780
815,556,503,890514,3439981
825,316,133,768024,1731582
835,095,783,652764,0048283
844,895,453,545463,8398884
854,725,143,452323,6792185
864,574,853,368643,5237186
874,454,583,300663,3742687
884,364,333,249073,2317588
894,324,113,225973,1029689
904,303,923,214382,9891290

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TONKIN CLACEY (PTA)

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