Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
ESTATE PLANNING FOR
Head of Fiduciary and Tax
Aug 24, 2023
Even if they haven’t formally ceased their tax residency with the South African Revenue Service (SARS), many South Africans who live abroad are of the view that if they left several years ago, they’ve automatically given up their tax residency in this country and will no longer have to pay taxes here. They’re under the misconception that they can transfer funds abroad or receive an inheritance without obtaining a tax clearance certificate.
To ensure a smooth transfer of intergenerational wealth without complications, it is crucial that your beneficiaries regularise their affairs with SARS. If they haven’t formally placed the cessation of their South African tax residency on record with SARS, they’ll first have to obtain the necessary clearances from SARS before they can externalise their inheritance offshore. This can be a cumbersome, not to mention costly, exercise.
After your beneficiaries have formally ceased their South African tax residency and paid any exit taxes (including capital gains tax), they’ll no longer be taxed in South Africa on their worldwide income but only on locally sourced income, for example, rental income.
To complicate matters further, many South Africans are beneficiaries of local trusts. In cases where a trust has been set up by parents or grandparents for the purposes of intergenerational planning and preservation of wealth, beneficiaries may not even be aware of their status as such. We can’t emphasise enough the importance of honest and open communication between generations – the financial impact can be significant if decisions about wealth transfer plans are made without the relevant family members’ full knowledge.
Then there are also implications if beneficiaries living abroad are in need of financial assistance, and the trustees authorise trust distributions to these beneficiaries. When a capital gain is distributed to a non-SA resident trust beneficiary, the conduit principle (shifting the tax burden to the beneficiary) will not apply and the trust will pay the taxes at a higher effective rate of 36%.
Punitive taxes imposed by some other jurisdictions present a further potential challenge. If your beneficiaries are living in the US, UK or Australia and receive distributions from foreign trusts, including South African trusts, those countries may hit them with punitive taxes. If a local or an offshore trust has beneficiaries in these jurisdictions, it’s imperative to obtain expert advice before any distributions are considered.
In broad terms:
To complicate matters further, the US Foreign Accounts Tax Compliance Act (FATCA) requires trustees or the relevant financial institution managing the trust assets to report to SARS that a US resident or green card holder is a beneficiary of a trust, and SARS will report the same to the IRS.
Similarly, resident beneficiaries may be subject to certain Foreign Bank Account Report (FBAR) requirements directing them to declare to the IRS if they have funds available outside the US.
In terms of the Common Reporting Standards (CRS), the details of settlors and beneficiaries of trusts must be recorded, and this information is available to all CRS member countries, including South Africa, Mauritius, the Channel Islands, Australia and the UK.
Besides setting up a trust, another option for transferring wealth to the next generation is simply to bequeath assets directly by way of a last will and testament. Again, it’s important to understand all the implications. If your children have not ceased their South African tax residency with SARS, they’ll only be allowed to transfer their inheritance offshore after obtaining tax compliance status from SARS.
It should be clear that intergenerational estate planning when beneficiaries live abroad can be fraught with complexities. There is no one-size-fits-all solution. Everyone’s personal circumstances, and therefore estate plans, are unique and it’s crucial to seek professional advice in order to ensure a smooth transfer of your wealth to the next generation.
If you need any information or assistance with regard to any aspect of estate planning, please contact Stanley Broun at email@example.com.
The formation and registration of trusts, and the provision of independent trusteeships – both local and oﬀshore.
The creation of BEE, charitable, special and Shariah trusts compliant with regulatory and legislative requirements.
The administration of deceased estates in South Africa and abroad.
Advice on complex structures, asset restructuring and bequests in foreign jurisdictions.
Advice on emigration and immigration, foreign earnings and the application of any double taxation agreements.
Updating trust deeds to ensure they’re in line with the latest changes in the trust environment.
Updating and/or drafting of wills dealing with South African and/or foreign assets.
Advice on the establishment and management of charitable organisations, their tax status and tax deductible donations.
Advice on the potential tax consequences and reporting obligations if you hold a US passport or green card, or if you have children living in the US.
Guidance on the financial implications of life-changing events, such as getting married, divorce or the birth of a child.
South AfricaSouth Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStar
Rest of AfricaSanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth Mauritius
GlobalGlobal Investment Solutions
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.