What tax is payable on the approved death benefit from my retirement fund?

When a pension (life annuity) is purchased for your dependants

No tax is payable in respect of the cash lump sum used to purchase a pension for your beneficiaries. However, the monthly pension payments will be taxed as an income in the hands of the beneficiaries and will be subject to PAYE deductions if it exceeds the tax threshold. The beneficiary/beneficiaries of a monthly pension may also be subject to SARS’s annual income tax assessment.

When the benefit is transferred to a parent or caregiver

Assuming that the investment is made in the name of a minor beneficiary for his/her exclusive benefit, investment income will accrue to and be taxed in the minor beneficiary’s hands (and not in the hands of the parent or caregiver) in accordance with the individual income tax tables.

Lump-sum benefit payments to a parent or caregiver on behalf of beneficiaries are taxable according to the Income Tax table.

When the benefit is transferred to a beneficiary fund

The investment income earned by the beneficiary fund will be tax-exempt and all benefit payments made to the beneficiary will be tax-free.

When the benefit is transferred to a trust

Assuming that, in terms of the trust deed, the benefit will be used for the exclusive benefit of your minor dependants, all income earned will be taxed within the trust. Therefore, benefit payments by the trust to the minor/s will not be subject to income tax again. The trust is taxed as either a special trust (individual tax rates without rebates apply) or normal trust (40% flat tax rate applies).

Payments to a trust are taxable according to the Income Tax table.

When the benefit is paid out in cash

A cash lump sum benefit is taxable according to the Income Tax table.

Income Tax table for the payment of death and retirement benefits:

Taxable lump sum (R) Rate of tax	Rate of tax
R0 – R550 000	0% of taxable income
R550 000 – R770 000	18% of taxable income above R550 000
R770 001 – R1 155 000	R39 600 + 27% of taxable income above R770 000
R1 155 001 and above	R143 550 + 36% of taxable income above R1 155 000

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