For many wealthy South African families, Section 7C estate planning remains one of the most misunderstood opportunities in the tax system. Yet, following the increase in the annual donations tax exemption from R100,000 to R150,000 per person, it has become even more valuable for those using family trusts as part of their long-term wealth preservation strategy.
The change may appear modest, but its impact can be significant over time.
Understanding Section 7C
Section 7C of the Income Tax Act applies when an individual lends money to a trust without charging interest, or charges interest below the official SARS rate.
Rather than allowing families to transfer wealth tax-free indefinitely, SARS treats the unpaid interest as a deemed annual donation. That deemed donation uses part of your annual donations tax exemption.
Previously, individuals could offset up to R100,000 each year. From 1 March 2026, that exemption increased to R150,000, providing substantially more flexibility for trust funding.
Why the Increase Matters
The higher exemption effectively allows larger interest-free loans to remain within the annual donations tax threshold.
Using current official interest rates, the previous exemption generally supported an interest-free loan of around R1.2 million before triggering donations tax.
The new R150,000 exemption increases that capacity to approximately R1.8 million.
For married couples who both make qualifying loans to the same trust, this can equate to roughly R3.6 million funded without creating a donations tax liability under the deemed donation rules.
That represents approximately 50% more funding capacity than before.
A Powerful Estate Planning Tool
Family trusts remain one of South Africa's most effective estate planning structures when used appropriately.
Assets that grow inside a trust are generally excluded from the founder's personal estate, helping reduce future estate duty exposure while providing continuity across generations.
When combined with Section 7C, families can gradually transfer future asset growth away from their personal estates while remaining fully compliant with SARS legislation.
However, these arrangements require careful structuring. Section 7C contains detailed anti-avoidance provisions, and incorrect implementation can create unintended tax consequences.
Is It Time to Review Your Trust?
Many trusts were established years ago when the annual exemption was significantly lower.
If your estate plan has not been reviewed recently, you may be missing an opportunity to optimise your trust funding strategy.
Questions worth considering include:
Is your current loan account structured efficiently?
Are both spouses making full use of their annual exemptions?
Could additional assets be transferred into the trust?
Does your trust still align with your broader investment and estate planning objectives?
A regular review ensures your estate planning evolves alongside changes in tax legislation.
Professional Advice Is Essential
While the increased exemption creates new opportunities, every family's circumstances are different.
The tax implications depend on factors such as the trust deed, loan balances, asset values, investment strategy and your overall estate planning objectives.
Professional advice from qualified financial advisers, tax practitioners and estate planning specialists is essential before implementing any trust or Section 7C strategy.
The Bottom Line
Sometimes the biggest financial opportunities are hidden in small legislative changes.
The increase in South Africa's annual donations tax exemption may seem like a relatively minor Budget amendment, but for families using trusts, it could unlock significantly greater flexibility in transferring wealth while reducing future estate duty.
Reviewing your trust funding strategy today could help preserve more of your family's wealth for generations to come.