My mother sold her property and wants to give me and my brother our inheritance (in advance) out of the sale of her property. The amount is R500 000. I want to pay it into my home loan. What will the tax implications be? Or is there a better investment or a way to save on tax? Thanks for your help.
There are a few considerations for this type of transaction.
The first one is to ensure that your mom makes provision for any capital gains tax (CGT) implications on the sale of her property. If there is a CGT liability, she should leave this aside before paying any proceeds to you and your brother. The CGT liability is dependent on whether the property was her primary residence or a rental, for example. CGT is paid on the proceeds or profit made on the property at the time of the sale.
Here is a CGT calculator from our clever friends at TaxTim.
The next type of tax is donations tax. Your mom and any other taxpayer can donate R100 000 per year without incurring any form of donations tax. Once you exceed this R100 000 there is a 20% donations tax that will become payable by the person making the donation. In your case, your mom.
To reduce this tax liability, your mom can transfer the proceeds to you and your brother over a number of years, thereby using her R100 000 annual allowance over a period of time. Your mom can also donate to her spouse and he could then also make a R100 000 donation to you and your brother. I obviously don’t have the full picture here to know your family structure. Donations between spouses are free of any type of donations tax.
In terms of investing, we will need a lot more information on your portfolio to make a recommendation on investments that could be suitable for you. The usual considerations would be a tax-free savings account, a retirement annuity, exchange-traded funds, unit trusts as well as investing offshore.
You need to find a balance in your portfolio between settling debt and investing. Settling debt will be a win in terms of saving on interest, but you also need to consider your long-term investment plans and where you will generate income from one day.
I think a discussion with a qualified financial planner will assist you with your decision making.
This is a lot of money and wise decisions need to be made.
All the best.