VDT Attorneys and South African cryptocurrency exchange Luno have advised that individuals with substantial crypto holdings should consider what happens to their investment in the case of their death.

Besides bequeathing the assets and ensuring your next of kin can gain access to them, there are tax implications to consider.

VDT Attorneys commercial and tax division director PR de Wet said individuals with substantial crypto holdings could take steps to minimise tax and ensure seamless asset transfer to heirs.

“Due to massive price increases, many South Africans — those who had the nerve to hold on — have done rather well with their crypto investments,” said Luno.

“Consequently, these investors face significant financial challenges in estate planning, with potential estate taxes threatening to reduce the value of digital assets substantially passed on to their heirs.”

De Wet explained that South Africa’s estate duty applies to estates exceeding R3.5 million at rates of 20% on the first R30 million and 25% beyond that. Surviving spouses can potentially utilise a tax exemption of up to R7 million.

Additional costs to consider include executor fees, which are 3.5% of the net asset value of your holdings, potential capital gains tax on asset disposal, and transfer fees for asset reallocation.

De Wet said that a simple example illustrates the critical importance of proactive estate planning.

“Consider an investor with R10 million in crypto and property assets at age 30,” he said.

“If these assets grow to R100 million by age 60, the estate tax could reach a staggering R22.625 million — significantly reducing the inheritance for heirs.”

He said taxpayers could arrange their affairs within the law to their best advantage to pay the least tax.

“Proper planning can minimise these costs, ensuring more wealth flows to your heirs,” he said.

De Wet recommended the following strategies to protect your digital wealth:

• Utilise corporate structures like companies and trusts to substantially minimise tax

• Leverage roll-over provisions in tax legislation to ensure that growth in your assets is ring-fenced in your company or trust and not your personal estate

• Consider transferring asset growth to corporate entities

• Explore offshore investment solutions

Luno said digital wealth presents new challenges for estate planning and that with careful strategies, investors could significantly mitigate tax burdens and protect their crypto legacy.

The exchange emphasised that preparation and letting your heirs know if you hold crypto was important.

Luno South Africa country manager Christo de Wit reiterated that investors should consider establishing a trust or corporate structure to manage digital assets.

They must also maintain detailed records of all crypto investments.

“Make sure that your executor or beneficiaries have access to necessary wallet information and private keys if necessary,” he advised.

The South African Revenue Service (SARS) has repeatedly warned crypto asset holders and traders to pay their dues as it cracks down on non-compliance.

Last year, SARS encouraged taxpayers with crypto assets to declare these with its Voluntary Disclosure Programme (VDP) to facilitate compliance.

SARS noted the immense growth in South Africans using digital currencies, particularly crypto assets. Over 5.8 million South Africans hold a crypto asset, with Southern Africa boasting the largest uptake of Bitcoin in the world.

“SARS is concerned that these crypto assets and trades are not being declared on the tax returns of taxpayers,” it said.

“SARS is legally obligated to account for any income or assets held by taxpayers and had previously invited crypto exchanges and those involved in trading or holding crypto assets to disclose related activities on a voluntary basis.”

Tax Consulting South Africa said that some taxpayers received notifications from SARS regarding crypto asset trading activities.

The notifications state that SARS received information from crypto exchanges about the taxpayer’s trades and warned that the individual may have failed to disclose them correctly.

“SARS is actively collaborating with both local and global platforms to identify crypto traders and investors who fail to disclose crypto-related profits,” the tax practice said.

SOURCE:Important information for people who invest in cryptocurrency in South Africa – MyBroadband