{"id":120636,"date":"2020-04-27T09:00:34","date_gmt":"2020-04-27T07:00:34","guid":{"rendered":"https:\/\/mobserver.co.za\/?p=120636"},"modified":"2020-04-27T09:00:34","modified_gmt":"2020-04-27T07:00:34","slug":"is-life-insurance-taxed","status":"publish","type":"post","link":"https:\/\/develop.citizen.co.za\/middelburg-observer\/news-headlines\/2020\/04\/27\/is-life-insurance-taxed\/","title":{"rendered":"Is life insurance taxed?"},"content":{"rendered":"

Asking whether life insurance<\/a> is taxed does not have a straightforward answer, and the way that you have structured your life insurance policy or beneficiaries will have an effect on the tax implications of your life insurance<\/a> payout.<\/p>\n

The short answer, however, is that beneficiaries won\u2019t pay income or capital gains tax on life insurance payouts that they receive from a policyholder. Here\u2019s what you need to know about tax and life insurance.<\/p>\n

Are life insurance payouts taxed?<\/strong><\/p>\n

For income tax and capital gains tax purposes, life insurance pay outs are not taxable. However, life insurance pay outs do have an impact on your estate and estate duties.<\/p>\n

When it comes to understanding how tax and life insurance works, Craig Baker, CEO of MiWayLife<\/a>,\u00a0 says “When no beneficiary is nominated, the payout will form part of your estate and the estate duty calculation will determine the tax payable.\u00a0With no beneficiary nominated, the life insurance payout will increase the value of your estate – which could also increase executor fees payable.”<\/p>\n

If a beneficiary is nominated, the life insurance payout will be a deemed asset in your estate.\u00a0The deemed asset won\u2019t increase the value of your estate for the purpose of executor fees but will be taken into account for estate duty. If you don\u2019t nominate a beneficiary, it makes your estate amount bigger, and could increase executor fees.<\/p>\n

\u201cHowever, it is important to note that the deceased\u2019s estate isn\u2019t liable for the full amount of payment of estate duty due to SARS if the proceeds of the policy were paid to a beneficiary (other than the estate).<\/p>\n

Estate duty will be apportioned between the beneficiary and the deceased\u2019s state,\u201d says Baker.<\/p>\n

This means that if there is money due to SARS as part of the estate duty, the beneficiary of a life insurance payout is liable to pay in their share. How is each share decided? The executor of the estate will determine how much the beneficiary will be responsible for paying towards the estate duty.<\/p>\n

Is the interest on a payout taxable?<\/strong><\/p>\n

Yes, if you inherit a sum and it gains interest in the bank, the interest will be taxable in the hands of the beneficiary as it is earned on the capital received. The same will go for any return on investments that you make with the payout.<\/p>\n

How does the estate duty tax work?<\/strong><\/p>\n

Estate duty will apply to people that own an estate that starts at 3.5 million and above. For example, if you own an estate to the value of 3.5 million rand, the estate duty will be payable at a rate of 20%. Estates that are below the R3.5 million are not subjected to this tax. This will have to be paid within a year of the death date of your loved one. In such scenarios it will be advisable to speak to a tax specialist to see what applies to your situation.<\/p>\n","protected":false},"excerpt":{"rendered":"

If a loved one passes away and you receive a payment from their life insurance policy, do you have to pay tax on the amount? <\/p>\n","protected":false},"author":8336,"featured_media":120637,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"hasGravity":false,"cxt_article_byline":".","cxt_disable_google_ads":false,"footnotes":""},"categories":[4912,2],"tags":[],"class_list":["post-120636","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-advertorial","category-news-headlines"],"category_labels":{"Category":"News","SubCategory":"Advertorial"},"_links":{"self":[{"href":"https:\/\/develop.citizen.co.za\/middelburg-observer\/wp-json\/wp\/v2\/posts\/120636","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/develop.citizen.co.za\/middelburg-observer\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/develop.citizen.co.za\/middelburg-observer\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/develop.citizen.co.za\/middelburg-observer\/wp-json\/wp\/v2\/users\/8336"}],"replies":[{"embeddable":true,"href":"https:\/\/develop.citizen.co.za\/middelburg-observer\/wp-json\/wp\/v2\/comments?post=120636"}],"version-history":[{"count":0,"href":"https:\/\/develop.citizen.co.za\/middelburg-observer\/wp-json\/wp\/v2\/posts\/120636\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/develop.citizen.co.za\/middelburg-observer\/wp-json\/wp\/v2\/media\/120637"}],"wp:attachment":[{"href":"https:\/\/develop.citizen.co.za\/middelburg-observer\/wp-json\/wp\/v2\/media?parent=120636"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/develop.citizen.co.za\/middelburg-observer\/wp-json\/wp\/v2\/categories?post=120636"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/develop.citizen.co.za\/middelburg-observer\/wp-json\/wp\/v2\/tags?post=120636"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}