Financial research statistics show that there is an increasing number of South African citizens and residents who have embraced the culture of saving. The challenge however for many of these people is finding ideal savings facilities which don’t expose their hard earned money to heavy taxes. In order to encourage household savings, Government has allowed licensed financial service providers to offer tax free investment and saving accounts.
Which accounts can qualify for tax free investments?
- Fixed deposits.
- Unit trusts (collective investment schemes).
- Retail savings bonds.
- Certain endowment policies issued by long term insurers.
- Linked investment products.
- Exchange traded funds (ETFs) that are classified as collective investment schemes.
How does it work?
- You don’t have to pay income tax, dividends tax or capital gains tax on the returns from these investments.
- There is a lifetime limit of R500, 000 per person.
- You can only contribute a maximum of R33, 000 per tax year and SARS will levy a tax of 40% on all contributions which exceed R33,000 per tax year.
- There is no term attached to your plan, this means you choose how long and how often you want to invest.
- Debit or stop orders are not be possible from these accounts.
- A person can have more than one tax free investment account; however, you are limited to the annual limits per tax year. This means you can invest for example R11 000 (Old Mutual), R11 000 (Investec) and R11 000 (Absa). The same will apply if for example you invest in your minor child’s name.
- You can increase, decrease, or stop your regular investments at any time.
- You choose how you want to invest – with lump sums, regular investments, or a combination of both.
This means next time you approach a financial services provider, you can ask for a tax free investment or savings account.