Death and taxes

As the law surrounding taxation can be complex and often subject to interpretation, but what is clear is that death and taxes are inseparable. Even in times of mourning, taxes must be paid. Accordingly, there are tax implications of income and expenses received after the death of a loved one. The Income Tax Act provides guidance on this matter, stating that income received after death is generally taxable. This includes any earnings from investments, businesses, or rental properties that continue to generate income after an individual’s death. The only difference is that when death unfolds, one will not be able to manage his or her affairs the way they do now or the way they would have planned or wanted to. The legislation governing estate administration in Zimbabwe has evolved over time it is codified in the Administration of Estates Act [Chapter 6:01]. The Act provides for the administration of deceased estates, estates belonging to children or mentally defective or disordered people, as well as individuals who are absent from Zimbabwe and whose whereabouts are unknown. The Act also establishes the position of the Master of the High Court, as well as the appointment of curators and executors, and protects both creditors and beneficiaries. The article aims to take taxpayers through on the administration of estates.

A deceased individual is subject to two fees: the Master’s fees, which require all deceased estates to pay a tax of 4% of the estate’s worth to the Master of High Court. The estate should be able to cover its own costs if it cannot the beneficiaries may make cash contributions to avoid selling assets. Second, a deceased individual is liable to estate duty tax, which is levied on the value of estate that exceed a specified sum that is gazetted by the law payable to ZIMRA. The following is how estate duty is calculated: Total Assets – Total Liabilities – Principal Residence – Family Car – Rebate = Dutiable Amount. The estate duty payable becomes 5% of the Dutiable sum It is also paramount to note that estate duty applies to income that meets the threshold of US100 000, amounts less than this are exempted from the payment of estate duty only subject to the Master of High Court fees.

In Zimbabwe, the question “Are funds received after death taxable?” is dominant. A deceased estate is created through the operation of law due to death. When a person dies, a new individual known as the estate of the deceased person takes his or her place. As a result, there are different tax rules for living people and deceased people. There may be two assessments for the same person in the same year of death, namely pre-death assessment and post-death assessment. If a person dies while working or running a business, income and expenses received and paid prior to death are typically assessed in the period preceding the date of death, while income and expenses received after death are assessed in the period following the date of death. However, it is important to note that not all income is subject to taxation. There are two types of income received after death: income accruing to the deceased estate and income accruing to beneficiaries. Income accruing to the deceased estate refers to any income earned by the deceased individual before their death but received by their estate afterward.

Death of person does not change the nature of his income nor how it is taxed.  If an amount would have been income in the hands of the deceased, it will also be income when received by the executor. His remuneration, including voluntary awards given in respect of services rendered, remains employment income. However, the voluntary payments only apply to amounts received or accrued to the executor.  A voluntary award made directly to a dependent or heir of the deceased could be treated as an amount of capital in nature, since the dependent did not render any services. A deceased estate as a person will be represented by the executor or administrator, who will be responsible for collecting all income earned by the deceased, whether earned before death or after death. Once he receives the letters of executorship, he is also responsible for collecting debts, paying creditors, reducing the estate into possession, rendering accounts, distributing property to heirs, and wound up the estate. If the testator established a trust, the estate must be transferred to the trustees.

There are different principles applied when dealing with different items in the computation of the  deceased’s taxable income; the following are examples but the list is not exhaustive: cash in lieu of leave received by the executor of the deceased estate of civil servant is not taxable; bonuses and directors fees voted after death or which are not fixed in the Articles of Association or Shareholders Agreement are not taxable since the deceased had no right to the amount during his lifetime; leave pay under an employment contract, royalties on a book, bonus or directors fees fixed in the Articles of Association and contractual commission are taxable in the post death period; commission in terms of a contract or agreement which is paid after death, to the executor of a deceased estate will be taxable either in the hands of the deceased if it becomes due and payable before death or in the hands of the estate if it becomes due and payable after death; any income made by a taxpayer as director of a company or as an employee in respect of a right to acquire marketable securities, shall be deemed to have been made by him on the day before his death and shall be included in his income up to the date of death. Death may also result in life insurance policies being paid to the estate or beneficiaries, as well as other death benefits, pensions etc. These are often not taxable because they are capital in nature.

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