Last reviewed June 2026, and updated for the 2026/27 donations-tax exemption of R150,000. Tax thresholds change each Budget — verify current figures at sars.gov.za before acting.
Many South African parents want to help their children settle a bond or get ahead. It is a generous, often life-changing gesture — but done the wrong way, it can trigger donations tax, inflate your estate, and push up executor’s fees. The good news for 2026 is that the annual donations-tax exemption has risen from R100,000 to R150,000 per person — the first increase since 2007 — making the tax-smart routes more effective than before. This article walks through two clean approaches: using the annual donations exemption, and structuring a properly documented interest-free loan.
The two tax-efficient ways to help your child settle their home loan are: (1) gifting within the annual donations-tax exemption (now R150,000 per parent per year), or (2) lending the money interest-free and forgiving it gradually using that same exemption. We also cover how to reflect a loan in your will so it doesn’t create an estate-duty or donations-tax surprise later.
Key Definitions
Donations tax
A tax of 20% (rising to 25% on cumulative donations above R30 million) on the value of property you give away. The donor is liable and must declare the donation to SARS on form IT144.
Annual donations exemption
The first R150,000 of donations made by a natural person in a tax year (1 March to end February) is free of donations tax. Each parent has their own exemption, so a couple can give R300,000 a year between them.
Spousal exemption
Donations to a spouse are exempt from donations tax, with no limit. From 25 February 2026, this exemption applies only where the receiving spouse is a South African tax resident at the time of the donation.
Section 7C
An anti-avoidance rule that taxes the “lost” interest on an interest-free or low-interest loan made to a trust (or a company owned by a trust). It does not apply to a loan between two natural persons, such as a parent and child.
Estate-duty abatement
The first R3.5 million of your dutiable estate is exempt from estate duty (up to R7 million for a surviving spouse via the rollover). Above that, estate duty is 20% up to R30 million and 25% beyond.
A Real-World Scenario
Recently, Margaret and David approached me for advice. Their son, Michael, and his wife own a home with an outstanding bond of R1.3 million. Margaret and David wanted to know whether they could simply settle the bond on his behalf.
Their intention is generous — but an outright once-off settlement would trigger donations tax, because SARS treats it as a gratuitous donation. After their combined R300,000 annual exemption, the remaining R1 million would be taxed at 20% — a R200,000 bill that careful structuring avoids entirely. That led us to two clean approaches.
Option 1: Annual Donations (R150,000 Per Parent, Per Year)
Section 56(2)(b) of the Income Tax Act lets each individual donate R150,000 per tax year free of donations tax.
How it works:
- Margaret donates R150,000 a year to Michael.
- David does the same.
- Michael receives R300,000 each year to reduce his bond.
At R300,000 a year, R1.3 million is funded in roughly four and a half years — with no donations tax at any point, provided each parent stays within their R150,000 limit.
The trade-off: Michael still makes his normal monthly bond repayments while the gifts accumulate. It is real help, but not immediate relief — which is exactly what Option 2 solves.
Best for: families where the bond is comfortably affordable, who want a simple, low-admin, long-term wealth transfer.
Option 2: Interest-Free Loan with Annual Forgiveness
To help Michael immediately, Margaret and David can lend him the full R1.3 million interest-free, so he settles the bond at once. They then write off the loan gradually, forgiving R150,000 each (R300,000 combined) every year using their annual donations exemption.
Here is the part a lot of online commentary gets wrong: people assume Section 7C forces you to charge interest, and that the “lost” interest counts as a donation. That is not true for a loan to your child. Section 7C applies only to interest-free or low-interest loans made to a trust (or a trust-owned company). A loan between a parent and child is a loan between two natural persons, so there is no deemed interest and no donations tax on the interest forgone. The only donation is the capital you choose to forgive each year — and that sits neatly inside the R150,000 exemption.
Loan write-off example (R300,000 forgiven per year)
| Tax year | Opening balance | Forgiven (R150k × 2) | Closing balance |
|---|---|---|---|
| 1 | R1,300,000 | R300,000 | R1,000,000 |
| 2 | R1,000,000 | R300,000 | R700,000 |
| 3 | R700,000 | R300,000 | R400,000 |
| 4 | R400,000 | R300,000 | R100,000 |
| 5 | R100,000 | R100,000 | R0 |
The R1.3 million loan is fully and tax-efficiently forgiven in five tax years, with zero donations tax — and Michael got the benefit of a bond-free home on day one. (Under the old R100,000 exemption this took far longer; the 2026 increase to R150,000 each meaningfully accelerates it.)
One important caveat — it must be a genuine loan. SARS can challenge an arrangement that is called a loan but was never intended to be repaid, and treat it instead as a donation of the full amount from the outset. The arrangement should be evidenced by a written loan agreement, and the parties should intend the loan to be legally enforceable. As a matter of good practice, the annual forgiveness should be a decision the lender takes each year using that year’s exemption — not a repayment waiver baked into the loan agreement from day one.
Best for: parents who want to give immediate bond relief, are comfortable keeping a simple loan record, and are mindful that the outstanding balance remains an asset in their estate until written off.
A common misconception: when does Section 7C actually apply?
Section 7C exists to stop people shifting wealth into trusts tax-free. If Margaret and David instead lent the R1.3 million to a family trust that owned the property, then yes — the difference between the SARS official rate of interest (the repo rate plus 1%) and the interest actually charged would be a deemed donation each year, and they would have to apply their exemptions against it. But that mechanism is triggered by the borrower being a trust, not by the loan being interest-free. Lend directly to your child and Section 7C never enters the picture. If a trust is part of your structure, the rules are very different — see our guide to family trusts and loans to trusts.
Option 1 vs Option 2 at a Glance
| Consideration | Option 1: Annual donations | Option 2: Interest-free loan |
|---|---|---|
| Immediate bond relief? | No — funded over ~4–5 years | Yes — settled upfront |
| Donations tax | None within R150k each/year | None (no Section 7C; forgiveness within R150k each) |
| Time to complete | ~4.5 years | ~5 years to fully forgive |
| Admin | Minimal | Loan agreement + annual records |
| Estate impact | Money already out of your estate | Outstanding loan stays in estate until forgiven |
Helping While You’re Alive: A Powerful Principle
Many parents would rather help their children now, when it counts, than through a will. This is not only about tax — it is about values. Whether your child is buying a first home, raising young children, or weathering high interest rates, well-structured support today can be far more meaningful than an inheritance decades later. It is also a core idea in sound intergenerational wealth planning: move wealth deliberately, at the moments it does the most good, rather than leaving it all to fall out at death.
Wills and Loans: Avoiding Donations Tax and Estate Duty
If Margaret or David passes away before the loan is fully forgiven, the will must deal with it — or SARS may treat the outstanding balance in a way the family never intended. A valid, up-to-date will is the foundation here; if you need a refresher on why, see our note on why writing a will matters.
What not to do: stay silent on the loan, or simply “forgive it” with no explanation. That can create deemed-donation arguments, estate-duty exposure and disputes among heirs.
The better way is a clear bequest, for example:
“I bequeath to my son, Michael, an amount equal to any debt owed to me by him in terms of the loan agreement dated [insert date].”
This acknowledges the loan as an asset in the estate, preserves fairness between heirs, and avoids an unintended donation.
Estate duty and executor’s fees
Unless it has been formally forgiven, the outstanding loan forms part of your dutiable estate and is also subject to executor’s fees (the prescribed maximum is 3.5% plus VAT of gross assets). Keeping accurate loan records and balances helps manage these costs and ensures your intentions are honoured. For the bigger picture on structuring an estate efficiently, our guide to estate planning in South Africa walks through how donations, the abatement and spousal rollovers fit together.
A Note on Family Loans and the National Credit Act
Family loans feel informal, but it is worth knowing where the National Credit Act (NCA) sits. The NCA generally does not apply to a once-off loan between family members that is not at arm’s length — which is exactly what a parent-to-child loan is. The position can change if a loan is interest-bearing, large, or part of a pattern of lending that looks like a business. The practical takeaway is simple: always put a written loan agreement in place. It proves the arrangement is a loan rather than a gift, supports your annual forgiveness, keeps the estate position clean, and protects everyone if memories later differ.
Frequently Asked Questions
Can I just pay off my child's bond in one go?
You can, but a once-off gift is a donation. After the combined R300,000 annual exemption for two parents, the balance is taxed at 20%. On a R1.3 million bond that is roughly R200,000 in donations tax — which structuring as annual gifts or a forgiven loan avoids entirely.
How much can I give my child tax-free each year?
R150,000 per parent per tax year in 2026/27 (up from R100,000), so R300,000 a year between two parents — free of donations tax. The tax year runs from 1 March to the end of February, and the exemption resets each year.
Does Section 7C apply to a loan to my child?
No. Section 7C applies only to interest-free or low-interest loans made to a trust, or to a company owned by a trust. A direct loan between a parent and child is between two natural persons, so there is no deemed interest and no donations tax on the interest forgone.
Is an interest-free loan to my child itself a donation?
No. A loan is repayable, so lending the money is not a gift. Only the capital you choose to forgive each year is a donation — and that falls within your annual R150,000 exemption, so no donations tax arises if you stay within it.
What happens to the loan if I die before it's repaid?
The outstanding balance is an asset in your estate, subject to estate duty and executor's fees, unless your will deals with it — ideally by bequeathing to your child an amount equal to the debt owed. Address it explicitly rather than leaving it to chance.
Final Thoughts
Helping your child settle a home loan can change their financial future — but it needs to be done right. Whether you gift gradually or structure a recoverable loan, the principles are the same: use your annual donations exemption, put a proper loan agreement in place, reflect the arrangement in your will, track balances clearly, and understand the estate-duty and executor-fee consequences.
Get those right and you can give meaningful help today without handing SARS an avoidable bill tomorrow. The R150,000 exemption makes both routes more effective than they were a year ago — but the structuring, not the size of the gift, is what protects the family.
Thinking about helping your child with a bond or a deposit? We help families structure intergenerational support that is tax-efficient, legally sound and coordinated with the rest of your plan — including drafting the loan agreement and reflecting it correctly in your will. If you’d like to weigh your options, we’re glad to talk it through.
This article is for informational purposes only and does not constitute financial advice. Henceforward (Pty) Limited is an authorised representative of Graviton Wealth Management (FSP 8772). Tax figures referenced are indicative — verify current rates and thresholds at sars.gov.za before making any decisions. Exchange control allowances are subject to SARB policy. Consult a qualified financial or tax advisor for advice specific to your circumstances.
Steven has been in the financial services industry since 2003 and launched Henceforward with Carl-Peter Lehmann in 2021. He focuses primarily on financial planning and client relationships. Henceforward is a fee-only, flat-fee firm — no commissions, no product incentives.