Investment industry not ready for tax-free account transfers

different providers’ accounts until March 1 this year.

This was to allow financial services companies time to develop their administration processes to deal with such transfers. In the 2016 Budget Review document, National Treasury notes that the date on which such transfers will be allowed will be postponed until November 1 this year, because providers are still not ready to allow such transfers.

The review notes that regulations outlining how these transfers should take place will be published shortly.

ESTATE DUTY LOOPHOLE

Treasury also notes in its Budget Review document that when tax-free savings accounts were introduced, the intention was that they should not be used to avoid estate duty.

As a result, amounts in these accounts when you die are included in your estate for estate duty purposes.

The document notes that Treasury has become aware that if you invest in a life assurer’s endowment policy structured as a tax-free savings account, you can nominate a beneficiary and your savings in the account will be paid to that beneficiary free of estate duty. Treasury intends to propose an amendment to Estate Duty Act to close this loophole, but one life assurer says nominations are not allowed on these accounts.

NO CHANGES TO LIMITS

In the Budget Review, there are no changes to the limits for contributions to tax-free savings accounts, which means you can still only contribute R30 000 a year to such an account and R500 000 over your lifetime.

The interest or returns you earn can, however, take you beyond these limits.

Your savings and any growth on them in these accounts are free of income tax on interest, dividends tax on dividends and CGT. However, even if you make any withdrawals from these accounts, you cannot put more than the annual or lifetime limit into the account. If you do exceed the limits, you will pay a tax penalty of 40 percent of the amount that exceeds the contribution limit.