Offshore funds and tax
THIS MAY BE THE ESTATE PLANNING TOOL YOU NEED
Remember a govt may impose an inheritance tax on financial assets.
You listened to the smart people and took your funds offshore. But how do you ensure that you do not get a big tax bill because, as a SA citizen, you are still liable to pay taxes on your worldwide income?
It’s crucial to emphasise that tax laws and regulations vary significantly between jurisdictions, and what may be permissible in one country could be illegal elsewhere. Thorough research and professional guidance are essential when navigating offshore tax planning and asset protection strategies.
When selecting an appropriate offshore investment product, estate planning is a crucial factor to consider.
The offshore assets in an investor’s estate could be liable to a mix of the following taxes and charges upon their passing: Local and foreign estate tax; Local capital gains tax; Local and foreign executor’s fees; and
Foreign stamp duty.
The type of investment vehicle and its jurisdiction will determine which of these taxes and fees are applicable.
Flexibility and creditor protection are other elements to consider in addition to these possible liabilities.
Foreign estate or situs tax:
A government may impose a situs tax, or other taxes, on financial assets according to their location.
When an owner dies, most assets, including equities, real estate, and bank accounts, are covered by this tax. An example of this is the UK inheritance tax.
When a person who is UK-domiciled dies, inheritance tax is payable at 40% of the value of assets in their estate – however, the first £325 000 (about R7.9 million) is exempt.
You can protect yourself against these taxes by placing your money in endowment funds or UCITS (Undertakings for Collective Investment in Transferable Securities) investment funds to minimise their tax liability. Distributing the funds among other nations lowers the total tax. For instance, policyholders of offshore endowments pay an effective capital gains tax rate of 12%, but individuals in SA pay 18%.
Grant of probate
A lot of platforms that South Africans use to invest offshore do so on the islands of Guernsey or Jersey. These islands require a grant of probate.
It is the equivalent of a letter of executorship in SA. If you have assets offshore, you might need an offshore will.
One way to protect your funds not only from situs tax and grant of probate is to invest in an offshore endowment.
The portfolio can hold multiple currencies and include shares, exchange-traded funds, unit trusts, or a combination of these assets. The investment provides advantageous income tax benefits, with a fixed rate of 30% for fixed income and an effective capital gains tax (CGT) rate of 12%.
Taxes are administered and incurred within the endowment structure, so investors do not need to report any personal tax to Sars. No executor fees are charged if beneficiaries have been nominated, and estate duty applies only if the investor is not survived by a spouse.