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The tax implications on your retirement should you move abroad

Have kids abroad or considering retirement on a Mediterranean island? Read this broad overview on tax implications when moving abroad.

Recent events in South Africa have raised an important question for pensioners or would-be retirees planning to diversify their investment portfolio to offshore investments and the impact of the concept of “emigration” on citizenship, affecting access to funds and influencing your investment(s).

The flow of money in and out of the country is regulated by exchange control residency (excon), governing the money you are allowed to take out of the country, as well as the circumstances in terms of which you may take money abroad.

What does this mean for a South African citizen? Should you leave the country to take up residency in another country, it affects your tax residency status. Firstly, you will have to inform the South African Revenue Service (Sars) you have ceased to be a tax resident, you will have to request a tax compliance status (TCS) for “emigration”, before being permitted to transfer any funds abroad – this does not apply if you applied for emigration before 1 March 2021.

Be aware that when you indicate on your IT12 tax return that you have ceased to be a resident for tax purposes, there is a deemed capital gains event. You will be deemed to have disposed of all assets excluding immovable property. For tax purposes, you will realise a capital gain (or loss) with the date on which you ceased to be a tax resident deemed to be the disposal date. This date is usually the date on which you left South Africa with the intention of not returning.

Once Sars has confirmed that you are tax compliant, you will be able to take money offshore with a limit of up to R10 million in assets a year. However, in the year you cease to be a tax resident, you will be allowed to transfer up to R1 million as a travel allowance without obtaining a TCS. Should you wish to transfer more than R10 million offshore, you will be subject to a more demanding verification process by Sars and you’ll need approval by the Financial Surveillance Department (FSD). The FSD will verify your tax status and the source of funds to determine the possibility of money laundering or possible illegal financing.

If you live abroad, but plan to return to South Africa in the future, declaring yourself a “resident temporarily abroad” has certain benefits, including pension and annuity payments directly into your foreign bank accounts, as well as receiving monetary gifts and loans from South African residents. These payments exclude the allowances mentioned in the previous paragraph.

Prior to 1 March 2021, Sars allowed individuals who formally emigrated from South Africa to access their retirement annuity and preservation fund savings prior to reaching retirement. These savings would be paid into the emigrant’s capital account and could then be taken offshore. This process will still apply if you submitted an emigration application before 28 February 2021, and your application is approved by the Reserve Bank on or before 28 February 2022.

If you submitted an emigration application after 1 March 2021, you will only be able to access your retirement annuity or preservation fund benefits if you have not been a South African tax resident for an uninterrupted period of three years on or after 1 March 2021.

Note that if you have not accessed your pre-retirement withdrawal benefit from your preservation fund, you will have immediate access to your benefit, as has always been the case. If you leave South Africa when your work or visit visa expires, you will still be able to access your benefits in the same way as before 1 March 2021.

The reasons for these requirements are twofold. Firstly, the intention is to make it easier to take money out of the country and secondly to discourage people from cutting ties with South Africa. Requiring a three-year commitment adds a degree of permanency to relocation abroad, discouraging withdrawing retirement savings should you leave South Africa for a short time only.

Determining your residency for tax or excon purposes can become quite complicated and depends on your unique circumstances. Seeking advice from a South African tax or exchange control specialist is recommended if you are leaving or have left South Africa to live abroad, whether on a temporary or permanent basis.

Adapted from a recent article published by Allan Gray

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Martin de Kock

Ascor® Independent Wealth Managers

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Let me tell you something, the regime is bankrupt!! They want anything and everything with value.

You will be a pauper if you live in SA like Zimbabwe. Remember, you wont be able to swim to Magagascar as it is just another african disaster. Get your money out now while you can!

Goodness me Bob,
Reading your comments makes my headache worse. Many people living in SA do not have the affluency to put money abroad. Further, we are all different and some of us choose to stay here because it is where the good old heart is and to move is unaffordable anyway so ‘home is where the heart is’ has become a default for many of us. Basically, lots of us have no choice but to stay and hope for the best. If we are to live to the end of our time here in SA I think it is important to keep financial affairs as simple as possible. Monies offshore makes no sense if you need to live off of it here in SA. ‘sending money offshore’ with a view to bringing it back to live off can be a tricky thing, timing wise (weak and strong rand and all that). Lots of us are not as financially savvy as is needed to fully understand the implications of ‘sending your money offshore’ and as we get older I do not fancy being 75 years af age and in a tizz because I do not understand why I must now pay all that tax on money I am ‘bringing back’ or ‘why it is not as much as I thought it would be’ or ‘why the tax consultant is always going on about the tax I owe’ or why the financial adviser ‘did not explain to me how it is all about timing the market when bringing your money back’.
If you are someone who has a good grasp of all things financial it would be gracious of you to be positive when commenting and try to bear in mind that we all sit in different boats and comments about swimming and all that really are not helpful to folk who might not fancy the cold water for starters and who already worry about their old age here in SA on any blessed day. Perhaps offer alternatives to folk who might not have cash to invest offshore. Feeder funds, while not foreign currency, is a helpful suggestion. If you have ‘cash to spare’ but intend living and dying here in SA and if your ‘spare cash is indeed ‘spare’ then maybe just 25% of that? But it is difficult to know what is really ‘spare’ (is there even such a thing with inflation at the helm?).
I was fortunate enough to have received the helpful opinion that if you think you have enough for your lifetime and will most likely use it to fund your lifestyle then don’t invest more than 25% offshore. If you need to draw from this offshore investment to fund your lifestyle, it does not make sense to bring the money back to rands because of currency movements and volatility. A good option then is to get offshore exposure by investing in a rand-based feeder fund. The helpful opinion also went on to offer a general rule for offshore allocation being the size of your current assets. If you have enough to provide for your lifetime and it is most likely that you will be able to leave some behind for your children then look to investing 25% to 50% offshore. If there is a chance of leaving to your grandchildren then the % goes up to 75%. And this is considered to be a long-term goal.
So, if you are like me and do not have the money to ‘go offshore’ then invest into a feeder fund. The words ‘feeder fund’ will be mentioned as part of the fund name. You can also go onto FundsData and you can learn about the different sectors and how each of the funds compares to other funds of the same sector. I have taught myself the basics and I get by okay. And I do not consider myself to be overly smart. Give it a go. Don’t be intimidated by the financial speak. If you keep it simple and make it your business to understand the basics you will be able to make decisions and relieve the headaches brought on by worrying about your future here in SA.

There you go! I hope that bit of info helps someone.

End of comments.

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