Tax Free Savings Accounts

Tax Free Savings Accounts became available to South African investors in 2015. In the long-term a tax-free savings account provides a significant benefit as income earned from the underlying investments is tax free and any capital gains when selling units will not trigger a capital gains tax event. So, if you are already paying income or capital gains tax or looking to save towards retirement a Tax-Free Savings Account may be a suitable investment vehicle to utilise.

Benefits of a Tax-Free Savings Account

  • The interest, capital gains and dividends you earn are completely free from any tax implications.
  • In the event of death, depending on the structure, your tax-free investment can be paid to your stated beneficiaries immediately and there are no executor fees charged. The value of the investment will however be included in your estate for the calculation of estate duty.
  • You have the flexibility to set up a monthly debit order or add ad hoc lump sums subject to the investment limits stated below

Investment Limits

  • You can contribute a maximum of R33 000 per tax year. This amount increased from R30 000 to R33 000 from 1 March 2017. Any unused portion may not be carried over to the following year. the contribution limits are aggregated across all tax free savings accounts owned and not per account.
  • There is also a life time limit on contributions of R500 000.
  • If a person exceeds the annual and/or lifetime limit, they will be subject to a penalty of 40% on the excess amount. It’s important to note that any withdrawals made may not be replaced.

Utilising a tax-free account may provide considerable benefit for investors in the long run. Please do not hesitate to contact us for more information.