My wife is my nominated beneficiary on my life insurance policies. We live outside of South Africa, and she has a bank account at a local European bank. In the event of my death, can the payout of the policy be deposited into a foreign account?
In order to answer your question, we had to make some assumptions and came up with a few possible scenarios:
Scenario 1: You are no longer a resident in SA, but the insurer is a South African insurer
This could be an old policy that was taken out while you were still living in SA. If your wife still has a local bank account, the proceeds can be transferred to the SA account, whereafter it may be sent offshore. Depending on her tax residency status, it may be subject to exchange control limits.
A SA citizen can take up to R11 million offshore per year, subject to tax clearance from the South African Revenue Service (Sars). The clearance is a formality and will generally be granted to any person whose tax affairs are in good standing with Sars.
|R1 million discretionary allowance||R10 million foreign exchange investment allowance|
|South Africans are allowed to transfer up to R1 million offshore per calendar year without having to obtain a Foreign Tax Clearance Certificate. This amount is covered by your annual discretionary allowance||Resident South Africans or South African citizens living abroad who have not yet formally emigrated in terms of exchange control (also known as financial emigration) are entitled to make use of the R10 million foreign investment allowance.|
If you and your wife have completed all the requirements for financial emigration and are no longer tax residents in SA, the insurer may make the payment offshore directly, depending on their internal payment policies. They will likely send rands offshore, allowing your wife to convert the currency to the local currency once she receives it. They may however require that a non-resident bank account be opened in SA and for the proceeds to be paid to that account. From there, the funds may be transferred offshore without limitations, in the currency of her choice.
Scenario 2: You are temporarily offshore, you are still taxpayers/residents in SA and the insurer is a South African insurer
The policy proceeds will have to be paid to your wife’s South African bank account and may then be taken offshore via the normal exchange control process and subject to the standard limits discussed above.
Scenario 3: Offshore insurer
At this time South African citizens cannot purchase a policy from an offshore life insurance company that is not registered in SA in terms of the Long-term Insurance Act. However, if you have dual residency in a foreign country, you may have a policy held with a foreign insurer.
In this case, the foreign insurer will pay the proceeds directly into your wife’s offshore bank account and the receipt will not be affected by exchange control limits.
Your query may seem quite straightforward on the face of it, but as you can see, there are many “ifs” and “buts” in our response. This is because there are so many variables, and the answer will be very dependent on the finer detail of your tax and residency status.
The tax treatment of the proceeds will also be affected by your personal residency situation.
For peace of mind, we recommend that you contact your insurer directly to get their confirmation in writing and then consider discussing their response with a financial advisor to ensure that the policy is still appropriate for your specific situation.