Navigating offshore property: should you sell now to simplify your estate process?

18 Dec 2024

Selling an offshore asset while you’re living has benefits, but do the following calculations to check that it makes financial sense to do so first.

Question

I own a property overseas that is worth about R8-million. We stay there from time to time, although these visits have become less frequent since I turned 80. I have heard that owning a property can delay the finalisation of my estate. I would like to make things as simple as possible for all concerned and am thinking about selling the property now. Is this a wise thing to do?

Answer

It is always a lot easier to dispose of an asset, especially an offshore one, while the owner is still living and available to readily provide any key documents or information.

Executors often have to scratch around for information, which can lead to increased costs as well as delays in finalising the estate. Add in the complication of having to pay overseas lawyers in dollars, euros or pounds and you will be able to appreciate the benefits of streamlining the process.

But before you go ahead and sell the property immediately, I would recommend that you do some calculations just to check that it makes financial sense to do so. Speak to a tax adviser in the country where your property is located and ask for an opinion on the taxes the sale of the property will trigger.

You need to establish whether these taxes would be more or less if you sold the property voluntarily, versus if the property was sold as part of the winding-up of an estate. Once you have this number, you can compare it with the benefits you will receive by having sold the property ahead of time.

There are many benefits to selling a property and investing the proceeds in an offshore structure like a sinking fund:

Should you die, the investment will be deemed to be an asset in your South African estate. You will therefore not have to pay situs or inheritance tax, which could be as much as 40% of the value of the asset. Instead, you would be liable for South African estate duty, which is typically 20%.

You can attach a beneficiary to this investment. This will save you about 4% in executor fees and you will not have the hassle of getting a grant of probate. You will also not incur the high costs of finalising the offshore part of your estate, which can often be as much as 6% of the asset value.

By housing the investment in a sinking fund, you will have access to different asset classes. These should be more robust than having all the value in a single asset like a property. It will also be easier to liquidate all or part of the investment.

Probably the biggest benefit is that the investment can be transferred to your wife in weeks rather than the years it would take if it went through the normal channels of winding up the estate.

If you sold the house and invested the proceeds in a sinking fund, you would have the savings on your property as shown below.

However, these numbers are estimates as you may, for example, have negotiated a cheaper rate with your executor or the probate costs could be lower than the 6% estimate.

The saving of R2.4-million would then need to be compared with any of the negative tax implications of selling the property while you are still alive. If the deal makes sense financially, then you should certainly consider doing it as it would make the inheritance process a lot easier. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected].

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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