Usufruct and capital gains tax

BWhat is a usufruct?

“A usufruct provides to the usufructuary a right of use of property or assets, lifelong or for a specific period, but the usufructuary does not acquire ownership of the relevant property or assets.”

Usufruct is often applied as part of estate planning in order to save on Estate duty, as the calculated value of the usufruct qualifies as deduction for Estate duty, should the usufructuary be the surviving spouse. E.g. a woman may bequeath her property to her son provided that her spouse has lifelong usufruct from it.

Obviously this kind of bequest may create problems, as the son is not able to utilise the property for personal use or rent it out as long as his father is still alive. If we talk about agricultural property the problems escalate and the practical administration of the usufruct can result in many a headache.

These issues are, however, of a personal nature and our opinion is that the root of the problem is actually the accountability of Capital Gains Tax which will revert to the owner when the property is eventually sold.

The value of the usufruct when it is created is recovered from the market value of the property in order to determine the bare property value. This calculated value will then represent the base cost of the property when it is eventually sold.


I, TOUGH TINA, bequeath my immovable property to my son, LITTLE JOHN, subject to the lifelong usufruct of my spouse, BIG JOHN. BIG JOHN is thus the usufructuary and LITTLE JOHN the bare owner.

Suppose the value of the property for the purpose of this example is R1 million. The usufruct value is calculated by capitalising R1 million allowing for BIG JOHN’s life expectancy (according to tables) and multiplying it by 12% (or a % as approved by SARS), in other words R1 million x 6,74206 x 12% = R809 047.

The bare property value at the death of TOUGH TINA is thus R1 million minus R809 047 = R190 953. Should LITTLE JOHN sell the property at R1.5 million after BIG JOHN’s death, taxable Capital Gains will potentially amount to R1 309 047 on which tax is payable.

We are not in principle against usufruct, but it is clear that costs and the influence of Capital Gains Tax on usufruct should be studied thoroughly before considering such a stipulation in your will.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

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IC Marais

Professional experience:

IC Marais is a certified CA (SA) with public sector and private sector technical knowledge based on 5 years’ Public Sector accounting, auditing and financial management experience and 5 years audit, tax and accounting experience. Detailed knowledge of private and public sector accounting and auditing standards (GRAP, IPSAS, IFRS, IAS, ISA) and public sector financial legislation (MFMA, etc.)

He enjoys the outdoors, hunting and fishing.


Professional experience:

In 1995, Schalk started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and then Mazars Moores Rowland in 2007) in Bloemfontein. In 1998, Schalk was appointed as manager at Moores Rowland, where he became a partner in 2003. Schalk received his Postgraduate Certificate in Advanced Taxation in 2006 and in 2009 he received his Certificate in the Administration of Estates.


Professional experience:

Cedric started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and Mazars Moores Rowland in 2007), Bloemfontein, in 1986. After completion of his articles, he joined the Special Investigations Division of the Department of Finance (SA Revenue Services) as a senior inspector from 1990 to 1991.


Professional experience:

Lucha started her career as a tax inspector at the Inland Revenue Department of New Zealand. After this she worked in commerce in Canada, Mexico and the United States.

On her return to South Africa, she completed her CA training contract with us and has been with Newtons ever since. She became a Partner in 2012.

Apart from her CA(SA) qualification she also holds a postgraduate certificate in Advanced Taxation (2005) and has the overall responsibility for training as our Training Officer.