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. A trust can acquire assets in other ways too, but two common ways for a founder to fund this structure are an outright donation and a loan, and each carries its own tax consequences:
- Give it (a donation) — it removes the need for repayment, but it can create donations tax now, disposal taxes (CGT on the asset given) and continuing attribution consequences under section 7 and the Eighth Schedule.
- 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. The loan claim also remains an asset in the lender’s estate.
Compare the full consequences of each route before choosing.
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 for the benefit of the National Revenue Fund 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 (in this Part referred to as the donor).
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 taxable donation on or after 1 March 2018 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 date is written into subparagraph (i) itself (it was inserted by s 35(1) of the Taxation Laws Amendment Act 23 of 2020). Only taxable donations count toward the aggregate.
The donor must declare the donation and pay the tax by the end of the month following the month in which the donation took effect — on the SARS-prescribed IT144 return:
(1) Donations tax shall be paid to the Commissioner by the end of the month following the month during which a donation takes effect or such longer period as the Commissioner may allow from the date upon which the donation in question takes effect. … (4) The payment of the tax in terms of subsection (1) shall be accompanied by a return.
Note — The Act fixes the timing and requires a “return”; the prescribed return is the IT144 (Declaration by donor / donee), named in SARS’s donations-tax guidance rather than in the section itself.
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 | Taxable 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, on the sliding scale) | Up to 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. shares in a trading company that is not a residential property company. Exempt under s 8(1)(n) of the STT Act where the unlisted security is an acquisition of “property” subject to transfer duty (or a supply subject to VAT) — as it is when Newco is a residential property company and the trust buys its shares | 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 + 1%; 7.75% 1 Dec 2025–31 May 2026; 8% 1 Jun–30 Sep 2026) | 8.25% (from 1 Oct 2026) |
| Transfer duty | Acquiring property — sliding scale | 0% to R1.21m … 13% above R13.31m |
Last reviewed: 29 September 2026. Rates are South African and time-sensitive. The R150 000 / R20 000 donations-tax exemptions are the figures SARS currently publishes; they come from clause 9 of the 2026 Draft Rates Bill (deemed effective 1 March 2026) and we have not located the promulgated amendment, so treat them as SARS-published rather than quoted statute. The official rate of interest changes with the repo rate, so a section 7C figure must follow the rate for each period. A special trust is taxed on the individual sliding scale (CGT up to 18%), not the flat 45% / 36% that applies to an ordinary trust; the 18% figure is a maximum effective rate, not a flat rate on every gain. 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 section is shown as enacted, with the R100 000 / R10 000 annual figures. Clause 9 of the 2026 Draft Rates Bill substitutes R150 000 / R20 000, deemed effective 1 March 2026, and SARS already publishes those figures; we have not located the promulgated amendment (see the box below). The spouse limb is shown as enacted, before the proposed resident-spouse limitation in the next box.
(1) Donations tax shall not be payable in respect of the value of any property which is disposed of under a donation— … (b) to or for the benefit of the spouse of the donor who is not separated from him under a judicial order or notarial deed of separation; … (2) Donations tax shall not be payable in respect of— (a) so much of the sum of the values of all casual gifts made by a donor other than a natural person during any year of assessment as does not exceed R10 000 …; (b) so much of the sum of the values 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 — Note the Act’s lettering: paragraph (a) is the non-natural-person / casual-gift limb (R10 000) and paragraph (b) is the natural-person annual limb (R100 000) — the reverse of how most people remember them. Clause 9 of the 2026 Draft Rates Bill substitutes R20 000 and R150 000 respectively, deemed effective 1 March 2026, and SARS publishes those figures as current (see the SARS Donations Tax page); we have not located the promulgated amendment. The spouse limb in (1)(b) is shown as enacted, before the proposed resident-spouse limitation.
The 2026 Budget raised both annual figures and proposed narrowing the spouse exemption to a resident spouse. The exemption increases sit in clause 9 of the 2026 Draft Rates Bill (deemed effective 1 March 2026) and SARS publishes them as current; we have not located the promulgated amendment, so treat the figures as SARS-published-for-planning and confirm enactment before relying on them:
The first R150 000 of property donated during each tax year by a natural person is exempt from donations tax. In the case of a taxpayer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R20 000 in total per tax year. Dispositions between spouses, where the recipient is a tax resident; donations between companies forming part of a South African group of companies; and donations to certain public benefit organisations are exempt from donations tax.
Note — These are the proposed 2026/27 figures from the Budget 2026 Tax Guide, subject to Parliament’s legislative process. The exemption amounts sit in clause 9 of the 2026 Draft Rates Bill; the resident-spouse limitation (the words “where the recipient is a tax resident”) sits in clause 17 of the 2026 Draft Taxation Laws Amendment Bill, explained below. Confirm both against the promulgated Acts before relying on them.
Separately, the 2026 Budget announced a proposal to limit the spouse exemption to a resident spouse — that is, the section 56 exemption for donations between spouses would apply only where the recipient spouse is a South African tax resident. The legislative proposal is clause 17 of the 2026 Draft Taxation Laws Amendment Bill (published 29 July 2026), which would substitute section 56(1)(a) and (b) to add the words “if that spouse is a resident”, deemed effective 25 February 2026 for donations made on or after that date. It is not in the Draft Rates Bill. It remains a draft subject to Parliament’s legislative process and is not yet enacted; confirm it against the gazetted Taxation Laws Amendment Act before relying on it for a donation to a non-resident spouse.
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:
(3) If a trust or company incurs— (a) no interest in respect of a loan, advance or credit referred to in subsection (1), (1A) or (1B); or (b) interest at a rate lower than the official rate of interest, an amount equal to the difference between the amount incurred by that trust or company during a year of assessment as interest in respect of that loan, advance or credit and the amount that would have been incurred by that trust or company at the official rate of interest must, for purposes of Part V of Chapter II, be treated as a donation made to that trust or company by the person referred to in subsection (1)(a), (1A) or (1B) on the last day of that year of assessment of that trust or company.
Note — The shortfall — the gap between the interest actually charged and interest at the official rate — is treated as a donation on the last day of the trust’s year of assessment, so it recurs annually and is reduced only by the annual exemption. The Government Gazette text refers to “the person referred to in subsection (1) (a), (1A) or (B)”; the consolidation’s editorial note suggests this should read “(1B)”, which is what we print above. The full mechanics, exclusions and worked numbers are on the dedicated section 7C page.
The reason the loan is called an “estate-pegging” asset is that the outstanding loan account remains the founder’s property and is dutiable in the founder’s estate at death. A donation takes the donated asset out of the founder’s hands now; a loan leaves a claim in the estate at its face value, while growth on the asset the trust bought accrues to the trust. Neither route freezes the founder’s whole estate or protects every asset automatically: the loan claim, any vested entitlement and any relevant retained power must each be considered separately when assessing the estate and exposure to creditors. Estate duty is charged on the dutiable estate at the same 20% / 25% split, after a R3.5 million abatement:
At a rate of 20% on the dutiable amount of the estate as does not exceed R30 million; and 25% of the dutiable amount of the estate as exceeds R30 million.
Note — The two-tier 20% / 25%-over-R30 million rate, and the R3 500 000 general deduction (abatement) from the net value of the estate, apply for deaths from 1 March 2018 to date. The rates and limitations are contained in Schedule 1 of the Estate Duty Act, 1955. See the SARS Estate Duty page for the abatement detail.
Frequently asked questions
A donation and a loan are two common ways to fund a trust, and many founders lend rather than donate. A donation removes the need for repayment but triggers donations tax now (20%, rising to 25% over R30m cumulative) after the annual exemption, and can still carry disposal taxes and continuing attribution consequences. A loan attracts no donations tax when made, but it leaves a claim in your estate, and 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. Compare the full consequences: 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.
SARS currently publishes an annual exemption of R150,000 for a natural person (up from R100,000) and a R20,000 casual-gift exemption for a non-natural donor (up from R10,000). Those figures come from clause 9 of the 2026 Draft Rates Bill, deemed effective 1 March 2026; we have not located the promulgated amendment, so treat them as SARS-published rather than enacted text and confirm enactment before relying on them. Donations between spouses are also exempt (with a proposal in clause 17 of the 2026 Draft Taxation Laws Amendment Bill to limit that 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 8.25% official rate that applies from 1 October 2026, a R6m interest-free loan generates R495,000 of deemed donation in a full year, taxed at 20% after the annual exemption; for the 2026/27 year, simple interest calculated daily under s 7D (7.75% for the 92 days to 31 May 2026, 8% for the 122 days from 1 June to 30 September 2026 and 8.25% for the 151 days from 1 October) gives R482,424.66, and donations tax of R66,484.93 after a wholly unused R150,000 exemption — one annual amount shared across all your donations, not a separate allowance for each loan. That is on the rates known at 29 September 2026; a further repo change before 28 February 2027 changes it again. Charging the official rate removes the section 7C shortfall, but does not by itself settle the separate attribution rules in section 7 and paragraphs 68 to 72 of the Eighth Schedule. And selling the shares to the trust on loan account is still a disposal with its own CGT.
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 a limit to a resident spouse, and clause 17 of the 2026 Draft Taxation Laws Amendment Bill (29 July 2026) would give effect to it by substituting s 56(1)(a) and (b) to add “if that spouse is a resident”, deemed effective 25 February 2026. It is still a draft Bill. A donation to a resident spouse stays exempt; one to a non-resident spouse may fall outside the exemption once enacted.
The donor is primarily liable, including for the section 7C deemed donation. But if the donor does not pay within the prescribed period, section 59 makes the donor and the donee jointly and severally liable, and SARS may assess either. On the loan route, keep the debtor straight: the trust owes the founder the purchase price for the shares; Newco owes the founder nothing merely because it now holds the property.