What Are The Tax Rates on Trusts in South Africa?

Trusts in South Africa pay a flat 45% income tax rate on retained or accumulated income under section 5 of the Income Tax Act 58 of 1962, plus an effective 36% rate on capital gains (80% inclusion multiplied by the 45% rate, per section 26). That rate applies to every rand of taxable income from the first rand earned, with no primary rebate and no graduated bracket. Income that vests in a beneficiary during the tax year is generally taxed in the beneficiary’s hands under the section 7 conduit rules, and at the beneficiary’s own marginal rate, not at the trust’s 45% rate. A small set of specially classified trusts — most importantly certain testamentary trusts and “special trusts” for beneficiaries with a permanent mental or physical disability — escape the flat rate and are taxed on the individual rate schedule for a defined window, with strict qualifying conditions under the proviso to section 5(2).

The Basic Rate Framework for Trusts

The standard rate of tax for an ordinary trust is 45% — flat, non-graduated, from the first rand of taxable income. This rate is set in section 5 of the Income Tax Act 58 of 1962 (as amended) and is reconfirmed each year in the South African Revenue Service (SARS) rate schedules for companies, trusts and small business corporations. SARS’s published schedule shows the 45% trust rate in force for the year of assessment 1 March 2026 to 28 February 2027, unchanged from prior years.

Trusts do not benefit from the primary rebate (R17 235 for individuals under 65 for tax year 2025/2026) and they do not benefit from any of the personal income-tax brackets. The result is a deliberately unattractive accumulation regime: a trust earning R100 of taxable income pays R45 of tax on it, while an individual earning R100 of taxable income pays nothing until they exceed the cumulative bracket thresholds.

Key takeaway: The flat 45% rate is a policy lever. The Income Tax Act treats the trust as a tax-paying entity on its own, separate from the settlor and the beneficiaries, and it is structured so that retention of income inside the trust is rarely the cheapest option.

How Trusts Compare to Individuals and Companies

The table below sets the headline rates side-by-side for the current tax year. The individual brackets should be reconfirmed against the SARS personal income-tax schedule before relying on them for any concrete client instruction, but the structure of the comparison does not change year to year.

Taxpayer	Marginal top rate	Capital-gains inclusion	Effective CGT rate	Lower bound
Individual (under 65)	45% on income above R1 817 000 for 2025/2026	40%	18%	18% on the first R1 to R238 100 of taxable income
Individual (65 and over)	45%	40%	18%	Marginal lower rate plus the secondary rebate
Trust (inter vivos / ordinary)	45% flat	80%	36%	45% from R1
Company (close corporation, private company)	27%	80%	21.6%	27% from R1
Small Business Corporation	0%–27% graduated on revenue thresholds	80%	Graduated	0% up to R95 750 of taxable income

The honest reading of this table is that trusts sit at the most punitive end of the spectrum for any taxpayer choosing to retain income inside an entity rather than draw it out. Companies do better on retained income (27% flat, with the same 80% CGT inclusion), and individuals with bracket room do dramatically better on distributed income (18% marginal rising to 45%, with only 40% of capital gains included).

Income That Vests in a Beneficiary: The Section 7 Conduit Rule

Income vested in a beneficiary during the tax year is, in the beneficiary’s hands, taxed at the beneficiary’s marginal rate rather than the trust’s 45% rate. The conduit rule sits in section 7 of the Income Tax Act and is the most important single provision in the trust-tax toolkit for a settlor trying to keep the family effective rate down.

It is also why trust deeds almost always give the trustee a discretion to either distribute or accumulate. The trustee is choosing between the trust rate (if accumulated) and the beneficiary’s rate (if vested), and the choice is usually driven by which rate is lower for the particular rand being considered.

The mechanics are practical: the trust issues an IT3(b) reflecting the amount vested and the tax already withheld by the trust, and the beneficiary claims that amount as a credit against their own assessment. A discretionary trust used as a “family pot” works best when at least some income is distributed each year to beneficiaries with available bracket room.

Distributions to Minors and Anti-Avoidance Rules

Section 7(3) provides that any amount distributed or accrued to a beneficiary who is a minor (under 18) is deemed to be the income of the parent, taxed at the parent’s marginal rate (capped at 45%). The parent is the taxpayer, not the minor and not the trust.

That rule does not apply to income earned on assets bequeathed by a deceased estate or testamentary trust for the benefit of minor children — the income in that case retains its trust character for the duration of the trust and is taxed at the trust rate (or, where the trust qualifies, on the individual schedule).

The anti-avoidance regime under sections 7(2), 7(3), 7(4) and 7(5) also catches back-to-back arrangements and certain accumulations designed to keep income inside the trust while benefits flow out. The practical effect is that “we’ll just lend the money back” or “we’ll set the deed up so the kids benefit indirectly” are not paths to escaping the flat rate — the legislation is drafted to look through the form to the substance.

Capital Gains Treatment for Trusts

Trusts include 80% of any capital gain in their taxable income (section 26, the inclusion rate for trusts). The effective rate on retained gains is therefore 80% × 45% = 36%.

If a capital gain is vested in a beneficiary during the tax year, the same 80% inclusion still applies but is taxed at the beneficiary’s marginal rate — so a top-bracket individual beneficiary pays 36% on a vested capital gain, while a lower-bracket beneficiary pays less. Compare that with individuals generally (40% inclusion → 18% effective) and companies (80% inclusion → 21.6% effective at the 27% rate). Trusts are again the most penalised treatment in the system.

The Annual Donations Tax Side of Trusts

Loaning or donating to a trust is treated, for donations tax purposes, as a donation to the trust (section 55 of the Income Tax Act). Donations tax is currently 20% on the first R30 million of cumulative donations by a donor and 25% above that threshold.

Exemptions exist (section 56) — between spouses, to certain public benefit organisations, and the casual-gifts exemption of R10 000 per donor per year. Estate duty considerations on the death of the settlor also interact with trust planning. The “deemed property” rules in section 3 of the Estate Duty Act 45 of 1955 can pull trust assets back into the deceased estate where the donor retained an interest.

Special Trusts That Don’t Pay the 45% Flat Rate

A “special trust” as defined in the proviso to section 5(2) is taxed on the individual rate schedule, not the flat 45%, for as long as it qualifies, and may claim the primary rebate. There are two main types:

1. A trust created solely for the benefit of a beneficiary with a permanent mental or physical disability that prevents them from earning an income (SARS calls this “Special Trust type A”).
2. A testamentary trust — created by the will of a deceased person — where the beneficiaries are relatives of the deceased who were alive (or conceived but not yet born) at the date of death, and the youngest beneficiary is under 18 at the end of the assessment year (SARS calls this “Special Trust type B”).

These trusts file the same ITR12T return as ordinary trusts, but they select the special-trust classification and may use individual-rate mechanics, including the rebates. Qualifying is strict: a special trust that breaches the requirements falls back to the flat 45% rate, often with retroactive consequences for prior years of assessment.

Trustees seeking Special Trust type A classification are required to apply at a SARS branch and supply the supporting medical and financial documentation that proves the disability and the income-earning impossibility. Burger Huyser Attorneys’ Trusts team handles these applications alongside the trust deed itself, because the classification usually has to be in place before the first return is filed.

When the Trust Rate Forces a Restructure

Trustees and settlors routinely hit the flat 45% rate when:

• The trust deed forbids or restricts distributions, so all income accumulates inside the trust.
• Beneficiaries are all minors, so section 7(3) pulls the income back into the parents’ hands at the parents’ marginal rate.
• The trust owns a high-income-producing asset (such as a rental property or trading operation) and distributions are uneconomic relative to the cash flow the trust needs to keep.

Common restructure routes include converting a discretionary inter vivos trust into a conduit (vesting income each year instead of accumulating), splitting the trust into multiple parallel trusts (each with its own R1 baseline so that the flat rate doesn’t compound on the same pool), or winding up the trust and holding assets personally. Each route has its own tax-and-deed rewrite cost.

This is where attorney input becomes unavoidable — deed amendments trigger conveyancing work where immovable property is involved, Master’s Office filings where the trust’s registration has to be updated, and SARS reclassification considerations that a SARS rate schedule cannot help with. Burger Huyser Attorneys’ Wills & Estates practice runs in coordination with its Trusts practice for exactly this kind of dual-track work.

Filing and Compliance: The ITR12T Trust Return

Most inter vivos trusts file an annual **ITR12T** return via SARS eFiling; SARS-registered bodies file differently. All ordinary and special trusts in the SARS classification (inter vivos, testamentary, vesting, discretionary, hybrid, and the two special types) use the same ITR12T form, with the trust-type flag distinguishing how the assessment is calculated.

Provisional tax (IRP6) applies if the trust earns above the SARS-prescribed threshold. Failing to register as a provisional taxpayer is a common penalty trigger — penalties escalate under section 210 of the Tax Administration Act 28 of 2011 the longer the default continues.

Beneficial-ownership reporting obligations and the Master’s reporting regime affect trusts materially: the trust’s beneficial-ownership record has to be kept current, and material changes (trustee substitutions, deed amendments, beneficiary profile changes) must be reflected in both the SARS record and the Master’s file. The IT3(b) issued to beneficiaries is the document they use to claim the credit on their own ITR12 return.

Quick-Reference Comparison: Trust vs Individual vs Company

Factor	Trust (inter vivos)	Individual	Company (Pty Ltd)
Standard rate on retained income	45% flat	18%–45% graduated	27%
Capital gains inclusion	80%	40%	80%
Effective CGT rate	36%	18% (marginal)	21.6%
Primary rebate available	No	Yes (R17 235 for under-65s, 2025/2026)	No
Distributions taxed at	Beneficiary’s marginal rate (if vested)	n/a	Shareholder level (dividends tax 20% on declared dividends)
Annual return	ITR12T	ITR12	ITR14

Frequently Asked Questions

What is the current tax rate on trust income in South Africa?

The current rate is 45% flat — there is no graduated bracket and no primary rebate for an ordinary inter vivos trust. This applies to taxable income retained or accumulated in the trust; income that vests in a beneficiary during the tax year is taxed at the beneficiary’s own marginal rate under section 7 of the Income Tax Act 58 of 1962.

Do trusts pay capital gains tax differently from individuals?

Yes — trusts include 80% of any capital gain in their taxable income (section 26), giving an effective capital-gains rate of 36% (80% × 45%) when the gain is retained in the trust. Individuals only include 40% of their capital gain, so the effective rate is 18% on a top-bracket individual. Trusts are the most penalised capital-gains treatment in the SA system.

What is a “special trust” and how is it taxed?

A special trust, defined in the proviso to section 5(2), is taxed on the individual rate schedule rather than the flat 45%, and may claim the primary rebate. It must be created solely for the benefit of a person with a permanent mental or physical disability that prevents them earning an income, or be a testamentary trust created by the will of a deceased person where the youngest beneficiary is under 18 at the end of the assessment year. Strict qualifying conditions apply; a trust that breaches them falls back to the flat 45% rate.

Is income distributed to minor beneficiaries taxed differently?

Yes — under section 7(3), income distributed or accrued to a minor (under 18) is generally taxed in the parent’s hands at the parent’s marginal rate, not in the beneficiary’s hands or at the trust rate. The exception is income from a testamentary trust created for a minor beneficiary, which retains its character and is taxed at the trust rate (or, where the trust qualifies, at the individual rate schedule).

Does a trust pay dividends tax?

No — dividends tax applies to dividends declared by a company to a shareholder. A trust does not pay dividends tax on amounts vested in beneficiaries (those are dealt with under the section 7 income rules); a beneficiary who is also a shareholder of a company that declares a dividend into the trust may, however, attract dividends tax at the company level depending on the trust’s classification.

What trust tax forms does SARS expect?

Most inter vivos trusts file an annual ITR12T trust return. Trusts that meet the SARS provisional-tax threshold must also register as provisional taxpayers and submit IRP6 forms twice a year. Beneficial-ownership reporting obligations also apply. Failure to register or file on time triggers SARS administrative penalties under section 210 of the Tax Administration Act 28 of 2011.

Can the flat 45% rate ever be avoided legally?

Yes — but only by structuring the trust so that income is vested in beneficiaries with available bracket room (the section 7 conduit), not by trying to shelter retained income inside the trust. Anti-avoidance rules in section 7(2)–(5) catch a wide range of arrangements designed to disguise the real recipient of the income. Where the trust deed prohibits distributions or all beneficiaries are minors, the 45% rate effectively becomes unavoidable.

Trust-tax planning is a deed, a beneficiary profile, and an income pattern — not just a number from the SARS rate table. Burger Huyser Attorneys’ Wills & Estates and Trusts teams help clients review existing trust deeds against the current Income Tax Act dispensation, advise on whether retention or vesting is the better strategy for a given year’s income, and handle the deed amendments and Master of the High Court filings where a restructure is needed. The firm practises from its head office at 49 First Avenue, Linden, Randburg (011 888 0246), with branches in Sandton, Roodepoort, Bedfordview, Centurion, Pretoria (Menlyn), Alberton, and Midrand. Initial conversations are booked through the office most convenient to the client. The firm carries a 4.8/5 average across 250+ Google reviews (Trustindex verified — “Top Rated Law Firm in South Africa”).