The headline rates: 45% income, 36% CGT
A trust is the harshest taxpayer in the system. An ordinary trust is taxed at a flat 45% on the taxable income allocated to it — there is no sliding scale and no rebate, so every rand of retained taxable income is taxed at the top marginal rate. Be precise about the base: taxable income is what remains after exemptions (a local dividend, for example, is exempt from normal tax and bears dividends tax instead), deductions and the s 25B allocation rules — it is not gross receipts, not the cash the trustees kept, and not a capital distribution. An amount can also vest in a beneficiary, and be taxed there, before a cent is paid out. On capital gains, an ordinary trust pays an effective 36%: the Eighth Schedule applies an 80% inclusion rate to a trust’s gain, the taxable capital gain enters taxable income, and 80% × 45% = 36%.
Beware a common error. The 18% figure you may have seen is the maximum individual (and special-trust) effective CGT rate (a 40% inclusion at 45%), not a trust rate. A company sits between the two at 21.6% (27% × 80%). The SARS Capital Gains Tax rate table sets out the effective rates:
Individuals and Special Trusts 18%; Companies 21.6%; Other Trusts 36%.
Note — [The 18% individual rate and the 36% trust rate are unchanged and current. An older SARS guide quoted 22,4% for companies; that predates the 2023 reduction of the company income-tax rate to 27% — the current company effective CGT rate is 21.6% (27% × 80%).]
This is precisely why these structures lean so heavily on the conduit principle below: rather than have rent or a gain taxed in the trust at 45% / 36%, it is vested in beneficiaries in the same year so it is taxed in their hands, often far more gently. The full schedule of figures sits on the 2026 trust tax rates page, and the trade-off against a company is compared on trust vs company.
| 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.
The conduit principle for income (section 25B)
A trust is treated as a conduit — a pipe — rather than a final taxpayer. Income it receives and then vests in a resident beneficiary in the same year is taxed in that beneficiary’s hands, not the trust’s. Only what stays in the trust is taxed in the trust. The amount also keeps its nature on the way through: rent stays rent, interest stays interest.
(1) Any amount (other than an amount of a capital nature which is not included in gross income or an amount contemplated in paragraph 3B of the Second Schedule) received by or accrued to or in favour of any person during any year of assessment in his or her capacity as the trustee of a trust, shall, subject to the provisions of section 7 (2) to (8),— (a) where that trust is a resident, to the extent to which that amount has been derived for the immediate or future benefit of any ascertained beneficiary, who is a resident and has a vested right to that amount during that year, be deemed to be an amount which has accrued to that beneficiary, and to the extent to which that amount is not so derived, be deemed to be an amount which has accrued to that trust; or (b) where that trust is not a resident, to the extent to which that amount has been derived for the immediate or future benefit of any ascertained beneficiary, who has a vested right to that amount during that year, be deemed to be an amount which has accrued to that beneficiary, and to the extent to which that amount is not so derived, be deemed to be an amount which has accrued to that trust.
Note — Subsection (1) was substituted by section 24(1) of the Taxation Laws Amendment Act 5 of 2026, with effect from 1 March 2026 and for years of assessment commencing on or after that date. The earlier wording, which applied from 1 March 2024, already required the vested beneficiary to be a resident but did not set out separate limbs for resident and non-resident trusts. The same Act (s 3(1), same effective date) added a residence test to two of the section 7 rules this subsection defers to: s 7(5) now attributes income to the donor only if the donor is a resident at the earlier of its accrual or receipt, and s 7(6) only while the donor retains the power to revoke or redirect the income and is a resident.
Start with the trust’s own residence. A South African family trust is a resident trust, so limb (a) applies, and it has two halves. To the extent the amount is derived for an ascertained, resident beneficiary with a vested right to it in that year, it is deemed to accrue to that beneficiary. To the extent it is not so derived — anything the trustees retain, and anything vested in a non-resident beneficiary — it is deemed to accrue to the trust, where the flat 45% applies. Limb (b) is a separate rule for a trust that is not a resident, so the result must always be checked against the residence of both the trust and the beneficiary. Capital gains are not dealt with here at all; they are governed separately by the Eighth Schedule (below).
The opening words “subject to the provisions of section 7 (2) to (8)” are the hinge to the attribution rules: even a textbook conduit can be overridden, so that the income is taxed in the hands of the person who made the donation, settlement or other disposition instead. Section 7 contains several attribution rules, each with its own conditions and its own required link between the disposition and the income. Section 7(7), for example, deals only with specified arrangements in which a person gives away income or a right to income but keeps the underlying property or interest, or a right to get it back. It is not a general rule that every trust donor is taxed on all the income the trust earns. Identify the subsection that actually applies.
The attribution rules bite hardest where the beneficiaries are minor children — under 18 (the age of majority is 18: Children’s Act 38 of 2005, s 17). Where income reaches a child because of a donation, settlement or other disposition by the parent, section 7(3) deems it to be the parent’s income instead, so vesting in a young child usually does not achieve the hoped-for rate saving. That mechanism is set out in full on minor children and attribution.
The conduit principle for capital gains (paragraph 80)
Capital gains have their own conduit rule in the Eighth Schedule. If the trust vests an asset (or the gain on it) in a resident beneficiary, the gain is taxed in the beneficiary’s hands — at that person’s rates, with an 18% effective ceiling for a top-bracket individual — and is disregarded in the trust:
(1) Subject to paragraphs 68, 69 and 71, where a trust vests an asset in a beneficiary … who is a resident, and determines a capital gain in respect of that disposal … (a) that capital gain must be disregarded for the purpose of calculating the … capital gain or … loss of the trust; and (b) that capital gain … must be taken into account … [for] the beneficiary to whom that asset was so disposed of. (2) … where a trust determines a capital gain in respect of the disposal of an asset in a year of assessment during which a beneficiary … who is a resident has a vested right or acquires a vested right (including a right created by the exercise of a discretion) to an amount derived from that capital gain … (a) [it is disregarded in the trust]; and (b) [it is] taken into account as a capital gain … of that beneficiary.
Note — Sub-paragraph (2) is the text substituted by section 52(a) of the Taxation Laws Amendment Act 23 of 2020. The Constitutional Court in Thistle Trust construed the earlier wording, which applied to the 2014–2016 tax years; the requirement that the gain arise on a disposal by that trust is common to both, which is why that decision still applies. See tiered trusts and Thistle.
Two things matter. First, paragraph 80 is expressly “subject to paragraphs 68, 69 and 71” — the attribution rules — so a gain vested in a minor child can be redirected to the parent under paragraph 69 just as income is under section 7(3). Second, paragraph 80 governs the flow-through exhaustively: the Constitutional Court has held that you cannot fall back on an open-ended common-law conduit to stack a gain through a chain of trusts. That is the lesson of the Thistle Trust case, summarised below.
A practical point on rate: when a gain is vested in a resident individual it is taxed at up to 18% (the maximum effective rate, reached only at the top marginal rate) — at most half the trust’s 36%. That difference — not income tax today — is the real engine of the planning.
The non-resident beneficiary trap
For a resident trust, the income conduit only works for a resident beneficiary. This is a relatively recent and easily missed change: since 1 March 2024 section 25B(1) has required the vested beneficiary to be a resident before income flows through, and the current wording (substituted by Act 5 of 2026 for years of assessment commencing on or after 1 March 2026) keeps that requirement in limb (a) for resident trusts, with a separate limb (b) for non-resident trusts. Income a resident trust vests in a non-resident beneficiary does not enjoy conduit treatment — it is taxed in the trust at the flat 45%, regardless of the vesting. “Resident” is the Income Tax Act’s defined term: a beneficiary who has moved abroad remains a resident until they cease to be ordinarily resident here (or fail the physical-presence test), so physical emigration does not by itself make someone a non-resident.
In applying section 7(8), the words “subject to the provisions of section 7” in section 25B(1) must be interpreted to mean that to the extent that both section 7(8) and section 25B(1) potentially apply, only section 7(8) must be applied. Section 25B(1) will apply to the balance of any income not derived in consequence of a donation, settlement or other disposition.
Note — Interpretation Note 114 was issued on 2 March 2021, when s 25B(1) read “subject to the provisions of section 7” and before the resident-beneficiary rule, so apply its reasoning rather than its worked examples. The current wording is subject to “section 7 (2) to (8)”, which still includes s 7(8). Section 7(8)(a) includes in a resident’s income an amount that reaches a non-resident by reason of that resident’s donation, settlement or other disposition, to the extent it is attributable to it.
Getting cash out of the company: dividends tax
In the classic structure the trust owns the shares in a company (Newco) that owns the property. Newco’s taxable rental profit (rent less deductible expenses) is taxed in Newco at 27%. When Newco then passes profits up to the trust as a dividend, a separate dividends tax of 20% is withheld on the distribution. The income conduit does not switch this off — dividends tax is a largely final tax on the act of distributing, not something the trust can flow away.
The practical effect is two layers on company profit before it reaches the family: 27% company tax, then 20% dividends tax on what is paid up. Keep three things separate. (1) Newco’s contributed tax capital — in a section 42 structure only the asset’s tax cost (R2 million on the Nkosi numbers, s 42(3A)), not the R6 million value; a return of it is not a dividend, but it reduces the shareholder’s base cost and any excess over base cost is a capital gain (paragraph 76B). (2) The shareholder’s base cost in the Newco shares. (3) Thabo’s loan claim — owed by the trust for the shares it bought, not by Newco. Repaying the trust’s loan out of Newco’s profits needs a dividend (20% dividends tax) or a return of capital first; Newco cannot simply “repay the loan account”. How that loan account is funded, and the section 7C cost of leaving it interest-free, is covered on section 7C loans.
| Event in Newco | Tax in Newco | Dividends tax on the after-tax amount | Combined |
|---|---|---|---|
| R100 taxable rental profit | R27.00 (27%) | R14.60 (20% of R73) | R41.60 |
| R100 capital gain on the property | R21.60 (80% inclusion at 27%) | R15.68 (20% of R78.40) | R37.28 |
Illustrative only. The rate illustrations on this page assume an ordinary South African company or ordinary trust, capital rather than revenue treatment where stated, the specified marginal rates, no relevant exemption or treaty reduction, and no available losses or other adjustments; this table also assumes the whole after-tax amount is paid up as a dividend subject to 20% dividends tax. The first row is R100 of taxable rental profit, not gross rent, and the 37.28% in the second row is measured on the capital gain (before the 80% inclusion) — it is not the tax on the whole sale price. Exempt dividends, retained earnings, returns of contributed tax capital, losses and other adjustments change the result, and actual tax depends on the taxpayer and the transaction. The figures are those SARS publishes for the 2026/27 tax year, checked on 29 September 2026; where a figure comes from a Budget proposal or draft Bill, confirm its legislative status and commencement before a transaction is implemented. A trust’s 45% and 36% apply to income and gains the trust itself retains or realises — not to every rand that passes through a company below it — and the 18% individual and special-trust CGT rate is a maximum effective rate, not a flat rate on every gain.
A final warning for layered structures. The conduit for capital gains does not let you stack a gain through multiple trusts to reach a low-rate beneficiary at the bottom — paragraph 80 governs, and the Constitutional Court rejected the multi-trust flow-through argument:
Frequently asked questions
An ordinary trust is taxed at a flat 45% on the taxable income it keeps and pays CGT at an effective 36% (80% inclusion × 45%). To avoid that, family trusts rely on the conduit principle: income and gains are vested in resident beneficiaries in the same year so the tax flows to them, often at lower rates. A special trust is taxed on the individual scale instead.
The flat trust income rate is 45% — no sliding scale, no rebate, so every rand of taxable income the trust retains is taxed at the top rate (taxable income, not gross receipts or cash kept). The effective CGT rate for an ordinary trust is 36%. A special trust is the exception — it is taxed on the individual sliding scale (CGT capped at an 18% effective ceiling). See the 2026 rates.
It treats the trust as a pipe, not a final taxpayer. Where the trust vests income (s 25B) or a capital gain (para 80 of the Eighth Schedule) in a resident beneficiary in the same year, that amount keeps its nature and is taxed in the beneficiary’s hands. Only what stays in the trust is taxed there — at 45%, or 36% on gains.
For an ordinary trust it is 36%, not 18%. The 18% figure is the top individual rate (40% inclusion × 45%). A trust has an 80% inclusion rate, which at 45% gives 36%. The 18% rate only reaches a beneficiary through the conduit — when the gain is vested in that person. A special trust is on the individual scale, so its CGT ceiling is 18%.
Yes, but usually only once. Under the conduit the income or gain is taxed in the resident beneficiary’s hands in the year it is vested — keeping its nature (rent stays rent, a gain stays a gain) — and is disregarded in the trust. A later payout of an already-taxed amount is not taxed again. The attribution rules can override this and tax the person who made the donation or other disposition instead, where their own conditions are met.
For a resident trust, section 25B(1)(a) only flows income through to a beneficiary who is a resident with a vested right to it in that year. Income vested in a non-resident beneficiary does not get conduit treatment and is taxed in the trust at 45%. That requirement has applied since 1 March 2024; the current wording (substituted by section 24(1) of Act 5 of 2026 for years of assessment commencing on or after 1 March 2026) keeps it and adds a separate limb for non-resident trusts, so check the residence of both the trust and the beneficiary. Check the funding too: where a resident funded the trust by a donation or an interest-free loan, section 7(8) can tax the income that reaches the non-resident in that resident’s hands instead — SARS’s Interpretation Note 114 says s 7(8) prevails where it conflicts with s 25B(1). Living abroad is not the same as being non-resident — the residence tests decide — so establish each beneficiary’s status first.