Publications
Partners
A Fin24 user is not sure what to do with the money he earned while working abroad. He writes:
I work offshore and, therefore, my income is not taxable in SA.
I have resigned from my company to move to another one.
The new company does not have a retirement/saving plan that I have been contributing into. It is Fidelity in the UK.
As it was a company plan, I cannot continue with it and I am now going to get paid out a lump sum of $170 000.
I want to invest this for retirement. What is the best way?
Bring it into SA due to current favourable exchange rates and pay off my house, because it is about the same amount that is owed on the house?
Or should I reinvest in SA or overseas? I am looking at a minimum period of five years with a maximum of 10 years before I will retire. Your advice will be appreciated.
Geraldine Macpherson, legal marketing specialist at Liberty, responds:
The first issue that must be considered is where is where youare going to retire - in South Africa or overseas?
If overseas, then it would not necessarily make sense to bring the money back to SA, only to have to move it back out again.
The authorised dealer, who effects the relevant transactions, would charge a fee on them.
This would negatively and unnecessarily impact on the capital available for retirement.
The second consideration is that, while the income received from employment offshore may not have been taxed in South Africa, should the lump sum be invested offshore, a South African resident would need to disclose the investment to Sars and declare any growth in his tax return.
This is because a South African resident is taxed on his worldwide income, including investment returns.
Thirdly, what kind of returns, after tax, would the investment have to yield - to match, let alone beat- the interest levied on the current bond instalments?
This is bearing in mind that the Reserve Bank only last week increased the repo rate by 50 basis points.
This will increase the interest payments on the bond, unless fixed.
By settling the bond there could be a tremendous saving on the overall price actually paid for the house, as the interest payment is obviously substantially reduced.
It is, however, necessary to make sure that the financial institution does not charge any early settlement penalties on the settlement of the bond.
Finally, if the bond is settled, relieving you of a debt that has to be satisfied on a monthly basis, it then becomes very important that the money that would have been spent on servicing the bond is now saved specifically for retirement.
A product that is tax efficient and inflation-beating would be ideal – such as a retirement annuity (RA).
While the contributions may not be tax deductible as they do not come from a taxable source*, at retirement these “disallowed” contributions will be refunded tax free, either on assessment against any income received from an annuity or when the directive is supplied for the lump sum taken (the 1/3rd, if it is elected).
In addition and of vital importance, the growth in the RA is entirely tax free – no capital gains tax, income tax or dividend withholding tax.
This immediately enhances the returns when compared to the identical portfolio in any other wrapper.
Given the short term until retirement, it is absolutely necessary to maximise on any tax savings available.
* I assume that the bond is being paid for out of the earnings generated from employment offshore, which are not taxed in SA, and not being taxable NRFI, therefor also not deductible.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
I work offshore and, therefore, my income is not taxable in SA.
I have resigned from my company to move to another one.
The new company does not have a retirement/saving plan that I have been contributing into. It is Fidelity in the UK.
As it was a company plan, I cannot continue with it and I am now going to get paid out a lump sum of $170 000.
I want to invest this for retirement. What is the best way?
Bring it into SA due to current favourable exchange rates and pay off my house, because it is about the same amount that is owed on the house?
Or should I reinvest in SA or overseas? I am looking at a minimum period of five years with a maximum of 10 years before I will retire. Your advice will be appreciated.
Geraldine Macpherson, legal marketing specialist at Liberty, responds:
The first issue that must be considered is where is where youare going to retire - in South Africa or overseas?
If overseas, then it would not necessarily make sense to bring the money back to SA, only to have to move it back out again.
The authorised dealer, who effects the relevant transactions, would charge a fee on them.
This would negatively and unnecessarily impact on the capital available for retirement.
The second consideration is that, while the income received from employment offshore may not have been taxed in South Africa, should the lump sum be invested offshore, a South African resident would need to disclose the investment to Sars and declare any growth in his tax return.
This is because a South African resident is taxed on his worldwide income, including investment returns.
Thirdly, what kind of returns, after tax, would the investment have to yield - to match, let alone beat- the interest levied on the current bond instalments?
This is bearing in mind that the Reserve Bank only last week increased the repo rate by 50 basis points.
This will increase the interest payments on the bond, unless fixed.
By settling the bond there could be a tremendous saving on the overall price actually paid for the house, as the interest payment is obviously substantially reduced.
It is, however, necessary to make sure that the financial institution does not charge any early settlement penalties on the settlement of the bond.
Finally, if the bond is settled, relieving you of a debt that has to be satisfied on a monthly basis, it then becomes very important that the money that would have been spent on servicing the bond is now saved specifically for retirement.
A product that is tax efficient and inflation-beating would be ideal – such as a retirement annuity (RA).
While the contributions may not be tax deductible as they do not come from a taxable source*, at retirement these “disallowed” contributions will be refunded tax free, either on assessment against any income received from an annuity or when the directive is supplied for the lump sum taken (the 1/3rd, if it is elected).
In addition and of vital importance, the growth in the RA is entirely tax free – no capital gains tax, income tax or dividend withholding tax.
This immediately enhances the returns when compared to the identical portfolio in any other wrapper.
Given the short term until retirement, it is absolutely necessary to maximise on any tax savings available.
* I assume that the bond is being paid for out of the earnings generated from employment offshore, which are not taxed in SA, and not being taxable NRFI, therefor also not deductible.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
