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The questions practice owners actually ask about buy-and-sell agreements — and the answers that decide whether the arrangement works when it is called on
Written by
Martin Kotze
Attorney, Conveyancer & Notary Public
Last reviewed:
No — it prevents a double hit and delivers cash. The deceased’s practice interest remains property in the estate and is dutiable at its value.
What the section 3(3)(a)(iA) exemption removes from the estate is the policy proceeds, which would otherwise be deemed property on top of the interest. And because the sale converts the interest into cash, the estate can actually pay the duty (and the final capital gains tax) without a fire sale.
It can be the single most expensive bookkeeping choice in the arrangement. If the practice pays the premium on the policy over your life and debits your loan account (or effectively funds it from your drawings), SARS treats you as having borne your own premiums and the exemption is lost.
If the practice must administer payments, every premium should be debited to the policy owner’s account — the co-owner who would buy your shares — under a written protocol, checked annually.
On SARS’s stated approach, no. The exemption requires that the policy owner and the deceased each personally held shares at the date of death, and where the shares sit in family trusts, neither does. In most regulated professions the ownership rules require personal shareholding anyway.
If trusts are anywhere in your ownership or policy structure, take specialist advice before relying on any exemption.
Yes. The exemption expressly extends to policies funding the purchase of the deceased’s shares and claims against the company — but, on SARS’s view, not claims alone without the shares.
Insure equity plus loan account, and oblige the buyers to take over or settle both. A practice worth R15 million with R3 million of shareholder loans needs R15 million of cover, not R12 million.
Carefully, if at all. The younger owner pays the higher premium because they insure the older life — that is inherent in the structure.
Compensating arrangements that route value from the older owner towards the premiums on their own life risk SARS treating those premiums as "borne by" them, which forfeits the exemption. Price the asymmetry into your overall commercial arrangement with advice, rather than bolting a premium-swap adjustment onto the policies.
Because almost every tax and regulatory feature turns hostile. The company is not a co-shareholder in itself, so the buy-and-sell exemption cannot apply — and the key-person exemption fails where family benefits. The buy-back price is a dividend to the estate except to the extent of contributed tax capital, and the Companies Act’s solvency, liquidity and approval requirements apply.
In a professional practice there is a further objection: a buy-back concentrates ownership pro rata among all remaining shareholders automatically, which may not match who is actually allowed to own the practice. Cross-held policies with a direct sale remain the standard for good reason.
The agreement should make accession and exit routine. The newcomer signs a deed of accession, takes out policies on the existing owners and is insured by them; the retiring partner typically takes over the policy on their own life and cedes the policies they hold on the others.
After every change, re-test the structure against the exemption requirements — co-ownership at date of death, purpose, premiums — because the exemption examines the facts as they stand at death, not as they stood at signature.
Yes, if validly concluded. It is a contract that binds the estate; the executor must perform it — deliver the interest against payment — like any other pre-death sale. Heirs do not inherit the shares; they inherit the estate’s claim to the purchase price.
An invalid agreement — unsigned, missing spousal consent, or drafted as a bare survivorship clause — leaves the executor free, and often obliged, to do something else entirely.
Life insurers typically pay a clean claim in weeks. That is the arrangement’s quiet superpower: the funding bypasses the estate entirely, so it is not trapped in an administration process that routinely takes a year or more, and it never suffers the executor’s remuneration of up to 3.5% plus VAT.
Five things, in order: that the policy ownership and premium flows match the agreement; that the valuation and the cover are current; that the parties named are the current owners; that your MOI or partnership agreement doesn’t contradict the buy-out; and that everyone’s will is consistent with it.
Most failed arrangements would have been caught by any one honest annual review.
Buy-and-sell structuring turns on the exact facts of your practice. If your question is not answered above, ask it directly.
The complete guide to buy-and-sell agreements for South African professional practices, split into the parts you are most likely to need.
The pillar guide — what happens without one, the two legs, validity, and what is actually being bought.
Cross-holding, the structures to avoid, and the three premium mistakes that destroy the estate duty exemption.
Estate duty, capital gains tax, income tax, STT and donations tax — with a worked example and the 2026/27 figures.
Attorneys under the LPA, health practitioners under the HPCSA rules, and the auditors’ six-month statutory clock.
The clause-by-clause checklist, disability and lifetime buy-outs, the twelve failure modes, and the roadmap.
Why you can trust this: Martin Kotze has been an admitted Attorney of the High Court of South Africa, registered Conveyancer, and Notary Public since 2014, practising from Pretoria. The firm is regulated by the Legal Practice Council under firm registration 17444.
This guide is general information, not legal advice for your specific matter.