Government and the South African Revenue Service (SARS) have moved decisively to shut down a tax planning strategy, particularly involving high-net-worth individuals preparing to cease their South African tax residency, by using the current donations tax exemption between spouses to avoid their full income tax liability in South Africa.
Mbalenhle Mahlaba
Team Lead: Expatriate Tax
Government and the South African Revenue Service (SARS) have moved decisively to shut down a tax planning strategy, particularly involving high-net-worth individuals preparing to cease their South African tax residency, by using the current donations tax exemption between spouses to avoid their full income tax liability in South Africa.
Mbalenhle Mahlaba
Team Lead: Expatriate Tax
In the 2026 Budget Review document National Treasury proposed that the donations tax exemption rules applicable to spouses be limited to donations made to a spouse who is a resident effective from 25 February 2026.
Section 56 of the Income Tax Act exempts donations between spouses from donations tax, meaning asset transfers between spouses generally do not trigger tax.
Stating the Tax Avoidance Risk
Treasury highlights the need to limit the donations tax exemption rules where a spouse ceases to be a tax resident after becoming aware of tax avoidance measures around this exemption.
“The arrangement involves deliberately staggering the cessation of tax residence between spouses, where significant assets are transferred to a spouse who has already become non-resident before the remaining spouse ceases residence. In these circumstances, the donations tax exemption applies, while the subsequent cessation of tax residence by the remaining spouse results in a reduced income tax liability under Section 9H of the Act.”
Treasury notes arrangements around donations tax exemption combined with ceasing to be a South African tax resident are designed to avoid both donations tax and the income tax on cessation of residency, undermining the original policy intent of these provisions.
Understanding Section 9H (Exit Tax)
Section 9H of the Income Tax Act, commonly known as “Exit Tax”, applies when a South African tax resident ceases to be a resident. SARS treats certain qualifying worldwide assets such as shares, investments, and foreign property, but excluding South African immovable property as if they were sold the day before the taxpayer ceases residency. This triggers a capital gains tax event, whereby the capital gains are taxed accordingly, based on accurate market valuations, historical cost records, and detailed calculations.
This is an important consideration when ceasing tax residency, even more so now following this latest move by Treasury to ensure that they do not miss out on taxes due by a departing taxpayer.
Planning of Cessation
South Africans planning to move abroad will need to reassess inter-spousal transfers and their timing. This will require expert guidance to ensure that you are fully compliant, especially if you are planning staggered cessation.
Other Key Considerations when Ceasing Tax Residency
Safeguarding the tax base remains a top priority for SARS, and the new limitation on spousal donations reflect this commitment. In light of this, high-net-worth individuals planning to depart South Africa must carefully manage their tax residency, asset transfers, and compliance with Section 9H to avoid unexpected liabilities.
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