Two ways to move value into the structure
Once Newco holds the property and the trust is meant to hold the shares, value has to move between the family and the structure — to capitalise the trust, to buy the shares, or to settle a bond. There are only two ways to move that value, and each carries its own tax consequence:
- Give it (a donation) — clean and final, but it attracts donations tax now.
- Lend it (a loan account) — no tax when the loan is made, but an interest-free or low-interest loan to a trust triggers an annual deemed donation under section 7C — effectively a slow donations-tax drip for as long as the loan is outstanding.
This page deals with the first route — the donation and the donations-tax rules that govern it — and shows where the loan route hands you over to section 7C instead. If you are moving an existing property into the company, that is a separate step under section 42; funding is about moving money or shares in afterwards.
Donations tax: the section 54 levy
Donations tax is charged on the value of anything given away for nothing (or for too little). It is the donor — not the recipient — who pays it.
Subject to the provisions of section 56, there shall be paid … a tax (in this Act referred to as donations tax) on the value of any property disposed of (whether directly or indirectly and whether in trust or not) under any donation by any resident …
Two definitions do the heavy lifting: what counts as a “donation”, and what counts as “property”. Both are read widely, so a gift of cash, a gift of Newco shares, or a waiver of a loan all fall inside the net.
“donation” means any gratuitous disposal of property including any gratuitous waiver or renunciation of a right; “property” means any right in or to property movable or immovable, corporeal or incorporeal, wheresoever situated.
Critically, you cannot dodge the tax by selling an asset to the trust at a discount. Where the consideration is inadequate, the shortfall is deemed to be a donation:
Where any property has been disposed of for a consideration which, in the opinion of the Commissioner, is not an adequate consideration that property shall … be deemed to have been disposed of under a donation …
That is why valuations matter when the founder sells Newco shares to the trust: sell them too cheaply and SARS can treat the difference between the price and market value as a donation.
The rate: 20%, rising to 25% over R30 million
Donations tax is levied at 20% of the value donated, rising to 25% to the extent the cumulative value of taxable donations exceeds R30 million.
The rate of the donations tax chargeable under section 54 in respect of the value of any property disposed of under a donation shall be— (a)(i) 20 per cent of that value if the aggregate of that value and the value of any other property disposed of under a donation until the date of that donation … does not exceed R30 million; and (ii) 25 per cent of that value to the extent that that value is not taxed under subparagraph (i); …
Note — The cumulative R30 million test aggregates donations made on or after 1 March 2018 — that aggregation start date sits in the surrounding statutory wording, not in the rate provision quoted here.
The donor must declare the donation on an IT144 return and pay the tax by the end of the month following the month in which the donation took effect. For a sense of how donations tax sits alongside the other taxes that shape these structures, see the consolidated 2026 tax rates.
| Tax | Applies to | Rate (2026) |
|---|---|---|
| Income tax — trust | Income retained in an ordinary trust | 45% (flat) |
| Income tax — company | Newco's rental / trading profit | 27% |
| Income tax — individual | Income vested in a resident beneficiary | Up to 45% (sliding scale) |
| CGT — trust | Gain retained in an ordinary trust (80% inclusion) | 36% effective |
| CGT — company | Gain in a company (80% inclusion) | 21.6% effective |
| CGT — individual / special trust | Gain in a person / special trust (40% inclusion) | 18% effective |
| Dividends tax | Company pays a dividend upward | 20% |
| Donations tax | Gifts / s 7C deemed donations (25% over R30m cumulative) | 20% |
| Estate duty | Dutiable estate on death (25% over R30m) | 20% |
| Securities transfer tax | Transfer of shares (e.g. Newco shares to the trust) | 0.25% |
| VAT | Standard-rated supplies (e.g. commercial property by a vendor) | 15% |
| Official rate of interest | s 7C deemed donation on low/no-interest loans (repo 7% + 1%) | 8% (from 1 Jun 2026) |
| Transfer duty | Acquiring property — sliding scale | 0% to R1.21m … 13% above R13.31m |
Last reviewed: 3 June 2026. Rates are South African and time-sensitive; 2026 Budget measures (donations-tax exemption increases, resident-spouse limitation) are subject to Parliament's legislative process. A special trust is taxed on the individual sliding scale (CGT 18%), not the flat 45% / 36% that applies to an ordinary trust. Confirm every figure against the current SARS material before acting.
Spouse and annual exemptions
Two exemptions matter most when funding a family trust: donations between spouses, and an annual exemption for the donor. The Act and the SARS rates guide still record the annual figures at the old R100,000 / R10,000 levels — but the 2026 Budget moved them, so read the source quote with its note.
(1) Donations tax shall not be payable in respect of … a donation— (b) to or for the benefit of the spouse of the donor who is not separated from him …; (2) Donations tax shall not be payable in respect of— (a) so much of … all casual gifts … by a donor other than a natural person … as does not exceed R10 000 …; (b) so much of … all property disposed of under donations by a donor who is a natural person as does not during any year of assessment exceed R100 000; …
Note — The verbatim figures above are the pre-1-March-2026 levels. The current annual exemption is R150,000 for natural persons and R20,000 for casual gifts by non-natural donors, announced in the 2026 Budget for years of assessment beginning 1 March 2026 — see the next box.
The 2026 Budget raised both annual figures and narrowed the spouse exemption to a resident spouse. These are Budget announcements that remain subject to Parliament’s legislative process — they are not yet the enacted text of the Act, so treat the figures as current-for-planning but confirm them before relying on them:
[The 2026 Budget announced that the donations-tax annual exemption increases to R150,000 for natural persons and R20,000 for casual gifts by non-natural donors, for years of assessment beginning on 1 March 2026; and that the spouse exemption is limited to donations to a resident spouse with effect from 25 February 2026.]
Note — [Budget proposal, subject to Parliament’s legislative process — confirm against the 2026 Rates and Monetary Amounts Act before relying on it.]
The loan route — and why it leads to section 7C
Because a donation triggers tax up front, most founders fund the structure with a loan instead: the trust acquires the shares (or the cash) and owes the founder the purchase price on a loan account. No donations tax arises when the loan is made — but an interest-free or low-interest loan to a connected trust is exactly what section 7C is designed to catch. The interest the founder gives up is treated as a fresh donation every year.
Frequently asked questions
Most founders lend rather than donate. A donation is clean and final but triggers donations tax now (20%, rising to 25% over R30m cumulative) after the annual exemption. A loan attracts no tax when made, but an interest-free or low-interest loan to a trust triggers a fresh deemed donation every year under section 7C — a slow donations-tax drip for as long as the loan is outstanding. The answer turns on the amount, your exemption headroom and how long the loan runs.
Donations tax is 20% of the value donated, rising to 25% to the extent cumulative donations exceed R30 million (aggregated from 1 March 2018). The donor pays it, and a sale at undervalue is treated as a part-donation under section 58. The donor files an IT144 and pays by the end of the month after the donation.
A natural person’s annual exemption announced in the 2026 Budget is R150,000 (up from R100,000); a non-natural donor’s casual-gift exemption is R20,000 (up from R10,000), for years of assessment beginning 1 March 2026. These are 2026 Budget measures, still subject to Parliament’s legislative process — confirm against the 2026 Rates and Monetary Amounts Act. Donations between spouses are also exempt (now limited to a resident spouse).
Making the loan is not taxed — it creates a loan account, not a donation. But if you charge no interest (or below the official rate), section 7C treats the forgone interest as a deemed donation every year. At the 8% official rate (from 1 June 2026), a R6m interest-free loan generates R480,000 of deemed donation a year, taxed at 20% after the annual exemption.
No — section 56(1)(b) exempts a donation to or for the benefit of the donor’s spouse, where they are not separated. The 2026 Budget announced that this exemption is limited to a resident spouse (effect 25 February 2026), subject to Parliament’s process. A donation to a resident spouse stays exempt; one to a non-resident spouse may fall outside the exemption once enacted.