Tax when donating shares to a family member

Direct answer

Giving shares, a unit trust or another investment to a family member for nothing can be a donation. SARS defines a donation as a gratuitous disposal of property and publishes the donations-tax rates, exemptions, donor liability and IT144 declaration process. Because shares and similar investments are also CGT assets, do not complete the transfer without considering the disposal calculation and keeping a supported value.

The recipient being family does not by itself remove the tax questions. The relationship, the form of transfer, anything received in return, the asset value and statutory exemptions matter.

What this means in practice

Begin by documenting what you intend to give and whether the recipient gives anything in exchange. A genuine free transfer is different from a sale, a loan, a trust distribution or a transfer under a divorce or estate arrangement. Do not label a transaction “a gift” after the fact because the paperwork and cash movement are inconsistent.

SARS identifies the donor as liable for donations tax, subject to the rules it publishes, and says that a donor who makes a donation should complete the IT144 declaration and submit it with proof of payment. The page also contains current rate and exemption information. Check the page for the tax period involved instead of relying on a remembered amount, because a threshold or rate can change.

Shares are assets for CGT purposes. That does not mean every transfer has the same CGT result, but it means you should preserve acquisition records, the investment statement and a credible value around the date of transfer. A low or nominal transfer amount is not a substitute for a proper analysis. If the investment is held through a company, trust, partnership, employee share scheme or foreign broker, take advice before signing.

Step-by-step

1. Define the proposed transaction.

Identify the donor, recipient, asset, number of units or shares, transfer date and whether the recipient provides any consideration. Preserve written instructions and correspondence.

1. Obtain a supportable value.

Download the broker statement and obtain an appropriate market or valuation record as at the relevant date. Record whether the asset is listed, unlisted, foreign or subject to restrictions.

1. Gather the acquisition history.

Retain purchase confirmations, corporate-action records, prior transfers and costs. These documents help with both CGT analysis and verification.

1. Check donations-tax treatment first.

Use SARS's current Donations Tax page to check whether an exemption might apply, the tax period, declaration method and payment timing. Do not assume that a family relationship creates an exemption.

1. Obtain a CGT review.

Ask a practitioner to consider the disposal and market-value consequences before the broker instruction is final. A clear calculation file is safer than an unsupported estimate.

1. Retain the final compliance file.

Keep the signed transfer, valuation, IT144, payment proof, return entries and any professional advice with the investment records.

Documents and records to keep

• Signed transfer or donation instrument and broker confirmation.
• Current and historical statements, valuation support and acquisition records.
• IT144 declaration, proof of payment and correspondence with SARS.
• CGT calculation, ITR12 and ITA34 where applicable.
• Evidence of any claimed exemption.

Important limits and exceptions

This guide does not say that a donation tax charge always arises, or that a family member is never exempt. SARS lists several exemption categories and conditions. The correct outcome depends on the donor, donee, type of asset, value, date and the legal form of the transaction.

Do not use an outdated rate or annual exemption in planning. The SARS page provides current information, and transactions that are material or close to a tax-year end need date-specific review. This guide also does not determine estate duty, trust taxation or the recipient's later base cost.

When to get tailored advice

Get advice before transferring a material portfolio, unlisted shares, a foreign investment, a share-scheme award or an asset into a trust. TaxProof can prepare the supporting schedule and documents, while a tax practitioner can review donations tax, CGT and the transfer mechanics.

Related TaxProof guides

• Are shares a capital gain or trading income?
• What is a clogged capital loss when I sell an asset to a family member?

Sources

• SARS, Donations Tax
• SARS, Assets Subject to CGT