Ordinary South Africans Face Surprise Tax Hit Over Spousal Asset Transfers

SOUTH AFRICA’S PROPOSED TAX CHANGE COULD AFFECT ORDINARY COUPLES WITH SPOUSES ABROAD

A shift in South African tax law could have far-reaching consequences for residents who transfer assets to spouses living outside the country, catching not just wealthy individuals but also ordinary families navigating cross-border relationships.

The National Treasury has signaled plans to restrict a long-standing exemption that currently allows spouses to transfer assets between each other without triggering capital gains tax. The change would apply specifically when the receiving spouse is no longer a South African tax resident. Treasury officials say the move targets wealthy taxpayers who exploit the exemption by shifting substantial wealth to non-resident spouses before the second partner emigrates, a strategy that sharply reduces the capital gains exit tax otherwise owed when leaving South Africa.

The scope of the proposed amendment, however, extends well beyond wealthy tax planners. Tax attorney Reinert van Rensburg of the Leap Group warns that the change will also apply to ordinary South Africans transferring assets to spouses abroad for entirely legitimate purposes, including family support or the division of jointly accumulated property. That broader reach raises a pointed question: is the Treasury’s approach proportionate to the problem it aims to solve?

The mechanics involve layering an additional tax on top of existing obligations. Currently, when a resident spouse donates assets to a non-resident spouse, capital gains tax is already triggered because normal rollover relief between spouses does not apply. The resident spouse is treated as disposing of the assets at market value, triggering the tax at that point. Under the proposed amendment, donations tax would apply to the same transaction as well, creating what van Rensburg describes as a compounding tax burden. Two different tax types levied simultaneously on a single transfer.

Van Rensburg suggests Treasury’s underlying concern may relate to protecting South Africa’s estate duty base. Once assets move into the hands of a non-resident, estate duty is typically not levied on those assets if the non-resident dies. Donations tax exists partly to prevent individuals from transferring wealth shortly before death to avoid estate duty, so extending it to spouse transfers to non-residents may serve that protective purpose.

Whether such a change is even necessary is complicated by existing law. Section 9(H)b of the Income Tax Act already functions as an anti-avoidance rule, triggering exit tax when a resident spouse donates assets to a non-resident spouse. This provision was introduced in 2019 specifically to prevent the kind of avoidance Treasury now says it wants to address. Van Rensburg points out that whether a resident donates assets to a non-resident spouse or retains them before ceasing tax residency, the same deemed disposal tax applies under the existing framework. The new amendment would therefore add a donations tax layer to a transaction already caught by existing anti-avoidance provisions.

By contrast, the timing of the proposal has raised fairness concerns that go beyond technical tax design. Treasury mentioned the possible amendment in its February budget speech, but the detailed draft bill was published months later, with Treasury seeking to apply the change retrospectively from February onward. Any asset transfers that occurred between the budget speech and the draft bill’s release would be subject to the new donations tax if the amendment is enacted. Van Rensburg acknowledges the tension between Treasury’s need to protect the tax base and its obligation to provide taxpayers with legal certainty. Retroactive application, even when intended to prevent a rush of pre-emptive transactions, raises serious concerns about fairness and predictability for ordinary citizens who acted in good faith.

For couples currently considering asset transfers, van Rensburg’s advice is cautious. Based on the current wording of the proposed amendment, resident spouses should avoid donating assets to non-resident spouses to escape unnecessary donations tax exposure if the law passes. Since the transfer already triggers capital gains tax regardless, and the exit tax applies similarly whether assets are donated or retained, there is no meaningful tax advantage to proceeding with a transfer now. Professional tax advice is essential before any action is taken.

The proposed change can be explored further at https://www.moneyweb.co.za/moneyweb-podcasts/moneyweb-midday/tax-change-could-hit-south-africans-with-spouses-living-abroad/ where the full discussion is available.

If enacted, the amendment would reshape how South Africa treats inter-spousal asset transfers in cross-border situations, with consequences extending well beyond the wealthy taxpayers Treasury says it is targeting. The open question is whether Treasury will narrow the amendment’s wording before it becomes law, or whether ordinary families will be left carrying a tax burden designed for a very different kind of taxpayer.