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What tax is payable on the approved death benefit from my retirement fund?

When a pension (life annuity) is purchased for your dependants 

No tax is payable in respect of the cash lump sum used to purchase a pension for your beneficiaries. However, the monthly pension payments will be taxed as an income in the hands of the beneficiaries and will be subject to PAYE deductions if it exceeds the tax threshold. The beneficiary/beneficiaries of a monthly pension may also be subject to SARS’s annual income tax assessment.

When the benefit is transferred to a parent or caregiver

Assuming that the investment is made in the name of a minor beneficiary for his/her exclusive benefit, investment income will accrue to and be taxed in the minor beneficiary’s hands (and not in the hands of the parent or caregiver) in accordance with the individual income tax tables.

Lump-sum benefit payments to a parent or caregiver on behalf of beneficiaries are taxable according to the Income Tax table.


When the benefit is transferred to a beneficiary fund 

The investment income earned by the beneficiary fund will be tax-exempt and all benefit payments made to the beneficiary will be tax-free.

When the benefit is transferred to a trust 

Assuming that, in terms of the trust deed, the benefit will be used for the exclusive benefit of your minor dependants, all income earned will be taxed within the trust. Therefore, benefit payments by the trust to the minor/s will not be subject to income tax again. The trust is taxed as either a special trust (individual tax rates without rebates apply) or normal trust (40% flat tax rate applies).

Payments to a trust are taxable according to the Income Tax table.


When the benefit is paid out in cash 

A cash lump sum benefit is taxable according to the Income Tax table.

Income Tax table for the payment of death and retirement benefits: 

Taxable lump sum (R) Rate of tax Rate of tax
0 - 500 000

0% of amount

500 001 - 700 000

R0 + 18% of amount exceeding R500 000

700 001 - 1 050 000

R36 000 + 27% of amount exceeding R700 000

1 050 001 and above 

R130 500 + 36% of amount exceeding R1 050 000

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