Spotlight on Death Taxes across Africa

Old Ben Franklin said that nothing in the world is certain except death and taxes.  Most people find both subjects disagreeable, and generally the two of them together. i.e. taxes due to death, are even worse.

Having worked hard to leave a legacy to one’s heirs, only for a chunk of it to disappear into the government’s coffers, is dispiriting. It can also lead to practical problems for the heirs, such as how to actually pay the tax without selling whatever asset was bequeathed to them in the first place. You as bequeathor may decide that any tax on death is not your problem – but if you actually like your heirs, anticipating the cost and problems caused by death taxes is well worthwhile!

When thinking of taxes caused by death, the natural inclination is to think of estate duty or inheritance taxes.  But other taxes can also arise, such as Capital Gains Tax, stamp duty or even VAT, depending on the laws in the countries involved.

A quick review of tax laws in different African countries suggests that people should not be very worried about death or inheritance taxes as most African countries do not levy such taxes. The bad news comes if you live in Angola, Botswana, Cameroon, Equatorial Guinea, Mozambique, South Africa or Zimbabwe, as these all have a tax on death at rates that vary between 5% and 30%. Those who live in Reunion or Mayotte have to deal with the French tax at 60%.

People in Nigeria often think that they do not have a tax on death, as there is no law for this.  However, a tax is imposed by the High Courts, at the time of granting probate, at the rate of 10%.  Most countries have exemptions for some types of assets, or for passing assets to the surviving spouse, or exempt a portion of the estate, or a combination of these. Nigeria’s system seems not to contain any of these reliefs.  So, paying this tax in Nigeria can be particularly painful for the heirs of the deceased, and can also lead to challenges for the executor or administrator in raising cash to pay the tax liability.

This is bad enough, and you may be thinking that at least African countries do not have inheritance or death taxes at the rates seen in some other parts of the world, such as the 40% rates in the UK or USA, 33% in Ireland, 60% in France, or even up to 45% in Lebanon. And if you do not live in one of the African countries that has this form of tax, you may think that this is a problem for somebody else.

But you would be wrong!  Maybe you have assets in the UK, USA or South Africa for example.  Even if you do not live there, you could find that your estate will be liable to tax there.  This could be due to some historical connection with the country – so if you are domiciled in the UK, your estate will be liable to inheritance tax there.  Or if you have certain types of assets, such as real estate, in the UK or USA, this could also give rise to an expensive tax liability.

So, what should you do?  Well here’s a general roadmap we’d recommend:

1. Identify which country you live in or are domiciled in, and then check what taxes are imposed by that country.
2. Identify which country your assets are located in, and then check what taxes those countries can impose.
3. Identify what tax costs could arise on death if you continue to own the assets.
4. Consider transferring the assets or some interest in them, either to potential heirs or to a trust structure.  In doing this, consider the tax and transaction costs of transferring the assets – this includes possible donations or gift taxes where applicable, stamp duty and capital gains tax.  In the case of shares in companies, also consider any possible restrictions on transfer of those shares.
5. Consider any other feasible ways of reducing the eventual tax cost, such as nominating beneficiaries to life insurance policies to prevent these forming part of your estate.
6. You may also consider moving to another country which imposes a lower tax or none at all – but this brings other complexities.
7. Drafting a will may not reduce the tax cost, but may make the task of winding up your estate smoother and maybe cheaper.  Probate may be easier to obtain if you have separate wills for the various jurisdictions in which assets are located.
8. Finally, in many countries, a popular method of avoiding taxes on death is not to die.  This is an appealing idea, but there are severe practical difficulties meaning it is not likely to work indefinitely – refer back to the Benjamin Franklin quotation.

It’s also worth remember that some countries, notably France and Mauritius, have deemed succession or forced heirship rules which are not a tax but can restrict who you want to leave your assets to on death, and should also be carefully considered upfront.

At some point in this process, you are likely to want some advice, either to identify the possible taxes, or to create a method to reduce and manage them.  Try not to put these tasks off to some date in the distant future. A good place to start may be a conversation with your tax consultant, to start to identify and scope the possible problem, and then think about possible solutions.  We will be very happy to have this conversation with you.