Question:
My late father has a living annuity and my mother is the beneficiary. However there is shortfall of R160 000 in his estate. What if any is the tax implication to withdraw this amount to cover estate costs? Do we have to make a larger withdrawal to get the R160 000 net? Thank you
Answer:
Celeste, It is not simply a question of withdrawing the money you need from the living annuity. If your mother is the beneficiary, she can choose to claim the entire living annuity either as a cash lump sum or as an annuity, or as a combination of the two. The cash lump sum will be taxed as a retirement cash lump sum, as though it had been received by your late father. The highest applicable tax rate will be 36%, for amounts above R1 050 000 (this refers to the total of his previous retirement fund withdrawals). If she chooses to receive an annuity, the transfer to the annuity provider is not taxed, only the income drawn from the annuity. This is taxed at the normal income tax rates. The annuity income may not be enough to cover estate's shortfall however. So, for example, your mother could choose to receive R250 000 as cash (net payout is R160 000, assuming a 36% tax rate) and use the balance to buy an annuity.
