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New tax law and my living annuity

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(Shutterstock)
(Shutterstock)

A Fin24 user, who has reinvested all his pension money in a living annuity, is not sure how he might be impacted by the new tax law. He writes:

I am retired. I have a living annuity, with the money in two unit trusts. I can withdraw 2.5% to 17.5%.

How will the new Taxation Laws Amendment Act impact me?

All of my pension money was reinvested in the living annuity.

Tracy Jensen, chief product architect at 10X Investments, responds:

The Taxation Laws Amendment Act, Act 31 of 2013 was promulgated on December 12 2013 and will come into effect on March 1 2015.

As part of the Taxation Laws Amendment Act, tax deductions for all contributions made to all funds, whether made by the members or by the employer, will be limited to the higher of 27.5% of taxable income or gross remuneration.

There will also be an overall tax deductible limit of R350 000 per annum.

In addition to this, contributions over the annual rand limits may be rolled over to future years, but will be subject to the limits applicable in those years.

The amendments will also mean that cash lump sums paid by provident funds on retirement will be limited to a third of the member’s fund credit from March 1 2015.

However, vested benefit rights are protected – only fund credits accumulated after March 1 2015 will be subject to the new tax regime.

Investors who are 55 and older on March 1 2015 will not be affected – 100% of their fund credit may still be paid out in cash at retirement.

In your scenario, as you are retired and have a living annuity in place, the new Taxation Laws Amendment Act should not affect you.

- 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.
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