Offshore Savings – Beware of Liquidity and Estate Taxes

Many South African citizens hold offshore savings without a clear understanding of the estate and tax implications of having money offshore.

Offshore savings form an important part of a diversified portfolio, but it is important to ensure that your offshore savings are structured correctly so that you do not overpay in tax and estate duties upon your passing.

There are complex estate taxes and winding-up procedures that can negatively affect the winding-up of your estate and the ease with which your family can access your offshore money.

Some of these issues are:

1. Upon your passing, it will be necessary to appoint a grant of probate (offshore executor) on any offshore assets held in another country.
2. Assets located in a country are broadly referred to as “SITUS” assets of that country.
3. For our purposes, this would include fixed property, cash, shares, tangible moveable property.
4. On death, if the assets are situated in the UK or USA, 40% Inheritance Tax is payable in excess of:
   • US$ 60,000
   • GBP 325,000 in the UK
5. There are many examples of estates taking years to wind up owing to foreign assets being held without a foreign will.

So, what is the solution?

It is important to have your assets ‘wrapped’ in a vehicle such as an offshore wrapper. This protects the assets from needing to be wound up by a foreign executor.

The benefits of consolidating your offshore investments into a wrapper are as follows:

Key features

• Cash, shares, bonds, ETFs and unit trusts can all be consolidated into one offshore portfolio for ease of management.
• Available to individuals and offshore trusts.
• Over 100 global unit trust funds available.

Lower tax rate and liability

• Capital Gains Tax will be 12% (versus 18% if directly offshore).
• Income tax is 0% as all distributions are rolled up within the unit trust funds.
• CGT is calculated in hard currency (thus not calculated on Rand depreciation).

Beneficiary nomination

• You can nominate a beneficiary on the portfolio and hence there is no need for a foreign will. Your family will take ownership of the portfolio quickly and easily without having to wait for the estate to be wound up.
• No need for Grant of Probate and consequently, foreign executor.
• The saving on estate taxes can be as much as 40% (SITUS TAX) and 3.5% (local executor’s fees).
• Immediate access to capital – beneficiary takes ownership of the investment.
• There is no Capital Gains Tax payable on death – Section 55 of the 8th schedule.

Tax administration/simplification

• Old Mutual is responsible for all tax reporting obligations.
• Old Mutual takes care of all tax calculations and payment to SARS.

In Summary

• Simplicity in taxation & better effective tax rate
• Simplicity in Estate Planning and flow to beneficiaries’ certainty
• Avoid Executor’s fees and Executor “intervention”
• Avoid Inheritance Tax concerns and Capital Gains Tax on death

Investonline’s Role

• Investonline will critically assess your risk profile
• Ensure you are invested in the appropriate risk-profiled portfolio
• Select the right investments for your portfolio to achieve best risk-adjusted returns
• Monitor your investment portfolio continually and recommend appropriate adjustments when necessary
• Assist with a smooth investment account set up
• Assist with all administrative queries, switches, withdrawals and additional contributions
• We are available to discuss and strategise investment market dynamics