Cryptocurrency exchange Luno has said that due to massive price increases in the markets, people who had the nerve to hold on to their investments had done well, but this could upset estate planning because of the tax implications. 

MyBroadband reports that VDT Attorneys commercial and tax division director PR de Wet said individuals with substantial crypto holdings could take steps to minimise tax and ensure seamless asset transfer to heirs.

‘These investors face significant financial challenges in estate planning, with potential estate taxes threatening to reduce the value of digital assets substantially passed on to their heirs.’

SA’s estate duty applies to estates exceeding R3.5m at rates of 20% on the first R30m and 25% beyond that.

Surviving spouses can potentially utilise a tax exemption of up to R7m.

Additional costs to consider include executor fees, which are 3.5% of the net asset value of your holdings, potential capital gains tax on asset disposal, and transfer fees for asset reallocation.

‘Consider an investor with R10m in crypto and property assets at age 30,’ De Wet said.

‘If these assets grow to R100m by age 60, the estate tax could reach a staggering R22.625m – significantly reducing the inheritance for heirs.’

To protect digital wealth in the world of crypto, De Wet said investors need to use corporate structures like companies and trusts to minimise tax and also leverage roll-over provisions in tax legislation to ensure that growth in assets is ring-fenced in the company or trust and not a personal estate.

Investors could also consider transferring asset growth to corporate entities and exploring offshore investment solutions.

Full MyBroadband report