Tax Free Investments

Tax Free Investments

How the plan works 

 

Any South African resident can invest up to R30 000 per annum in their tax free savings plan. 

Investments can be made as a lump sum or recurring at a maximum R 2500 per month.

 

For investors starting their journey tax free plans are also available from as little as R350 per month. 

 

Taxes on growth on the investment plan also known as CGT, tax on Interest and Dividend withholding taxes on distributions received from investments will not be taxed. 

 

Care should be taken not to exceed the annual R 30 000 limit as Government will impose a 40% fee on every rand invested over the prescribed limit. 

 

Key Points 

 

  • Max Annual contribution R30 000 or max R2500 per month.

  • Maximum lifetime contribution of R 500 000.

  • No tax paid on CGT, Interest & Dividend withholding tax.

  • Full liquidity with no penalties.

  • Investors must not exceed annual limits. 

  • A Tax free plan can be started from as little as R350 per month. 

 

Who is the plan suitable for 

 

In Short everybody, but first time or younger Investors will find the most value in the tax free savings plan.

 

Seasoned investors traditionally had the edge in tax optimised savings but the introduction of the tax free plan opens further opportunities for smart wealth creation. 

 

Young Investors who have a longer time horizon can truly benefit by using the tax free savings plan as taxes wont stunt growth.

 

First time investors will also stand to win as the plan is easy to understand with no penalties on withdrawals with the same great tax savings. 

 

For seasoned investors the tax free plan is best used to supplement existing savings or to save for an exact goal or to help ones children start an investment or   education plan. 

 

Tax Free savings vs. Traditional savings vehicles

 

Tax free plans can be compared to the following readily available investment vehicles:

 

1. Linked investment plans 

 

These plans provide the same lump sum or monthly investment options to investors as their tax free counterparts without the fee imposed on contributions exceeding R 30 000 per annum.

 

All proceeds are however liable for taxation subject to annual exemtions.

 

A Correctly structured Tax free solutions will provide much more value for long term investors. 

 

2. Endowment plans 

 

Endowment plans offers affluent investors the opportunity to reduce their tax rate on investment gains to a flat 30%. The plan also offers limited liquidity with only two disinvestment being allowed within the first 5 years. 

 

For new Investors a Tax Free savings plan makes a lot more sense as taxed are waived and money can be accessed easily.

 

3. Retirement Annuities

 

Retirement annuities or RA's were traditionally the investment of choice to reduce a person's tax liability.

.

A person could contribute up to 15% of their annual salary towards an RA and receive a tax deduction on income for that tax year. Withdrawals on RA's are limited & taxable however as it is intended as a long term savings benefit. 

 

In contrast Tax free savings plans does not impact a person tax liability for a calendar year, but will reduce taxes paid over the life of the investment while still retaining access to your money. 

 

A Practical Example  

 

Savings on a tax free investment. 

 

Assumptions

 

  •  R2500 p.m over 10 Years Invested into a single balanced fund. 

  •  Dividends distributions to be reinvested.

 

After the end of 10 years your investment will be worth R 487 592. 

Adding back tax on dividends, interest and CGT that will not be paid your value jumps to R 516 740.

 

A saving of R 29 148 over a similarcomposed normal investment.