If you win a lottery or inherit big money, you have two simple options to give away cash. Both affect your taxes, but in different ways.

1) Give to friends and family (private gifts)

You probably will want to share some of the spoils with friends and family. This has tax consequences which you may not be aware of. The amount you give away will be taxed at 20% above the first R100 000. Above R30 000 000 the tax rate increases to 25%. You will have to pay SARS before the end of the month after the the month in which your made gift. There is no tax applied to the person receiving the gift. However, if SARS does not receive the tax from you he will look to the receiver of the gift for the tax owing.

Why is this tax applied?

Essentially, SARS sees the donation or gift as the offloading of your personal estate which on death is taxed at 20% as estate duty. So, the 20% applied to donations tax puts a plug in the loop hole whereby a tax payer could reduce his estate before death and avoid the consequential duty payable.

2) Donate to an approved PBO (Public Benefit Organisation)

You may also give some of your winnings to a charity. This will still be seen as a donation with the same tax consequences. This form of giving can only enjoy tax relief against your taxable income if you donate to a Public Benefit Organization which is registered with SARS having a legitimate PBO number.

What are the conditions

You need a Section 18A tax certificate from the PBO to support your claim as a tax deduction. The certificate will have the PBO number and the total amount gifted during the tax year. The maximum you can claim against PBO donations is 10% of your income.

Plan your gifting carefully

So, gifting some your Lotto wining comes with conditions that need careful consideration. You may reconsider spreading your gifts over a few tax years using the limits to full advantage and mitigating against the tax that will be applied.