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Trusts Still Effective In South Africa, Says Adviser

by Justin Gorringe,, London

07 March 2002

Speaking at a company presentation in Johannesburg yesterday, Maitland Trust Company Managing Director John Doidge said that trusts remained the most effective vehicle for the preservation of wealth despite the fact that Finance Minister Trevor Manuel, in his budget, raised the tax rate on trusts to a flat 40% on all taxable income. Mr Doidge said that trusts also provided a safe haven for protection against creditors in the event of insolvency.

Doidge said the new tax rates meant that individuals would pay capital gains tax (CGT) at 10% whereas trusts would pay CGT at 20%. He said those involved in the “daily use and administration of trusts might be forced to conclude that these developments make trusts unattractive”. However, he said trusts were “as vital today as they have been for generations”.

Doidge said spouses were exempt from estate duty. He said they had a R1,5m estate duty allowance. The net effect of this between both spouses would be a combined allowance of R1,5m. Doidge said estate planners could save income tax “by using the estate duty allowance to form a trust”. “By using the breaks the law has given us, it is sometimes possible to avoid CGT in a trust altogether.” He said if there were no opportunities for reducing CGT, a trust would pay CGT at 10% more than an individual.

If the individual were to hold on to the asset to avoid the higher CGT in the trust, they would have to pay estate duty on the growth at 20%. By holding on to the asset, they would be 10% worse off than they would have been by putting the asset in a trust. He said Manuel had increased the allowance for donations tax in his budget to R30 000 per taxpayer per year. This meant that if a taxpayer wanted to help his child get established in a home of his own, he would have to pay donations tax at 20% on the amount of the donation that exceeded R30 000. He said if the support came from a trust, “no donations tax would be payable”.

Doidge warned against products and schemes “which were predicated upon the premise that people could make donations of R30 000 per annum”. He said an undertaking to donate R30 000 per year for five years would be considered to be a donation of R150 000 and would be liable for donations tax of R24 000.

Maitland Trust Company was established by Maitland & Co, the legal and consulting firm, in February 1988 in response to client demand for offshore trust and company services. The company specialises in implementing and maintaining cross-border structures which are designed to deliver tax and estate planning efficiencies while at the same time seeking to preserve and enhance the value of the underlying assets.

Maitland has offices in the Isle of Man, Luxembourg, Geneva, the British Virgin Islands, and South Africa and with a staff of over 90 says it can put together multi-disciplined teams from any one or more of our offices to enable a client's financial and business objectives to be met effectively.

The company's core business over the years has been the establishment of trusts in a wide range of jurisdictions, but it can also establish and administer offshore collective investment funds and provide comprehensive assistance with regard to remuneration and pension schemes.

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