TAX CONSIDERATIONS

AT the summit, Diane Seccombe, head of taxation at the Mazars Academy, outlined the tax treatment of the various products discussed. Here are a few salient points.

VOLUNTARY ANNUITIES

♦ Like compulsory annuities, the income they provide is classified as “remuneration”, and the life company deducts income tax as PAYE.

♦ They are subject to the Section 10A tax exemption under the

Income Tax Act, if the legislative requirements are met. This exempts you from paying tax on the capital portion of each income payment.

ENDOWMENTS

♦ You do not pay income tax on the regular withdrawals after the initial five-year restricted period. However, the life company pays 30% tax on interest earned and 12% capital gains tax.

♦ If your average income tax rate (not to be confused with your marginal rate) is more than 30%, you score taxwise using these products.

♦ Even if your average income tax rate is less than 30%, endowments may be beneficial for other reasons – for example, on death they could pay out directly to beneficiaries, which will mean there are no executor fees payable and the payout is not dependent on the winding up of the deceased estate. Another great benefit is the possibility of creditor protection after the first three years.