Refund of annuity are subject to estate duty

Someone asked me if the refund of capital on a life annuity is subject to estate duty.

The answer is "yes". It forms part of the estate. But, the refund is likely to be less than the invested capital (as the capital is reduced by each payment). If the annuitant dies after 15 years, the refund will disappear.

Some life annuity does not have a refund feature, and pays a higher amount.

Similarly, any gift made during 5 years before death is also subject to estate duty. Most people will live more than 5 years after making the gift, if they do it at a younger age.

I advise people - make your gift earlier when you are not too old. It will be more useful to your children when they start their own family or buy a house. If you do not wish to give them a lump sum, buy a term annuity so that your gift is given to them in installments.