Different Investment Vehicles For Saving

Often clients ask what types of investments are available to them to save money.
So here are some guidelines on some investment vehicles available:

Retirement Annuities (RA):
• If investing for your retirement directly with an investment house, such as Allan Gray or Investec, the minimum monthly investment amount is R500.00 per month. Should you want to invest a lump sum, the minimum is R20,000.00 When investing with a Life Company the minimum can be much less, but please, keep in mind it might not be as advantageous due to fees charged by the Life Company, as well as the investment managers. Best is to chat with an advisor to look at projections if you decide to save R500.00 per month or less.
• These investments fall outside of your Estate for Estate duty purposes, which means it will be excluded when calculating the value of your estate.
• Contributions to an RA are tax deductible.
• The investor may choose beneficiaries in the event of his/her death. Please note that should you have more than one dependant but only noted one beneficiary, the trustees will take into account the other dependants’ circumstances and even rule that they are to benefit from the proceeds as well. This means that the noted beneficiary might not be the sole receiver of the funds.
• Retirement annuities are protected from Creditors.
• Withdrawals are only allowed from the age of 55 and certain rules will apply to the withdrawal.
• Regulation stipulates how much of the funds are allowed to be allocated offshore and into equities in order to protect the investor’s funds from excessive volatility.

Tax Free Savings Account:
As from 1 March 2015, a natural person can invest up to R30, 000.00 per year (R33,000.00 in 2017) with a lifetime limit of R500,000 in an approved savings instrument such as unit trusts, fixed deposits, or real estate investment trusts. All growth/returns on this investment will be free from income tax, dividend tax and Capital Gains tax. HOWEVER, a penalty of 40% will be charged if the annual contribution exceeds R33,000.00 or if the lifetime allowable contribution of R500,000.00 has been exceeded.

We have seen some clients take out a Tax Free Savings Account and then a second Tax Free Savings Account with another institution, not understanding the limits which has resulted in penalties being levied.
• WARNING: Any withdrawals from this investment in a given year and then RE-invested in the same year will attract a penalty as it is seen as a new contribution and not a replacement of the previous funds. This means should you withdraw the cash to bridge some or other financial gap for a month or two thinking you can add it back later – it will attract a penalty of 40% on the full amount above the allowable R33,000.00 for that year.
• The investor may choose a beneficiary in the event of his/her death.
• The investment value will be added to your estate when calculating estate duty.

Endowment:
This investment allows you to invest a lump sum or a monthly contribution into an investment which is more tax efficient than a Platform or Unit Trust Investment for high income earners. When investing directly with an investment house such as Allan Gray or Investec:
• Funds are internally taxed at 30% and not at your marginal tax rate of 41% if you fall within the higher tax bracket or 45% if you earn over R1,5 million per annum.
• The funds are invested for 5 years and only vests after 5 years.
• However, one cash loan can be taken prior to the 5 years, thereafter no further loans from the investment will be allowed until the 5 year cycle has run.
• Adding to this investment later on might be slightly tricky as you are only allowed a 120% additional contribution every year, (eg. Year 1 you invested R100,000.00 year two you may only invest R120,000.00) otherwise the 5 year restriction period starts again. Should you want to invest more than the allowed amount, rather take a separate Endowment.
• After 5 years the investment can continue to run without withdrawal restrictions so any amounts can be withdrawn at any time.
• The investor may choose a beneficiary in the event of his/her death.
• This investment will form part of the deceased estate for estate duty purposes.
(Pls note, investing via a Life Company might have different rules. Usually investing here will result in penalties if you access the funds before the 5 year cycle has run.)

Platform Investment / Unit trust:
• This is an investment which gives more freedom to the investor. One can add to, withdraw lump sums or withdraw a regular amount from this investment. It is perfect for saving for something specific such as education, saving for a car or just a rainy day fund.
• This investment attracts CGT, Dividend Tax and Income Tax on the growth of the fund. So every year you will receive a tax certificate which will clearly show the different tax liabilities on this investment.
• One can allocate any amount offshore and/or in equities on the local platform as there is no regulation on this investment when it comes to the fund allocations. This means the client can invest 100% of his funds into offshore equities or decide on a more balanced split between his funds.
• However, this investment cannot be left directly to a beneficiary, but will form part of the deceased estate at death.
• This then means it will be added to the estate value when calculating the estate duty payable.
•Offshore Platform Investments are also available for saving, but will be discussed in a future blog as it has different rules and limits.

For a more comprehensive look at the tax implications of the various investment vehicles, one has to make an appointment with an advisor. There are various tax implications depending on whether the investments are made by a natural person, a trust or a company.

Please contact me should you need some advice or projections on your investments.
Kind regards
Lize Webb
0845841158

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