You know how I bang -on about getting value for the fees you pay? 

Because fees reduce what you get to keep an compound over time?

Well tax is similar.

If you are paying more tax than you need to then you are reducing what you get to keep and compound over time too.

Best you sharpen up your mindset and your pencils.

SARS gives you many ways of reducing the amount of tax you pay either now or in the future.

Some quick wins:

  • Split income – If your spouse is in a lower tax bracket, shifting income-producing assets can reduce your overall tax burden.
  • Maximize deductions – Retirement contributions, medical aid credits, and even certain expenses related to earning income can all work in your favor.
  • Use tax-free investments – If you haven’t maxed out your annual tax-free savings allowance, now’s the time.
  • Use retirement funds – Don’t listen to the naysayers. These things are one of your best tools to grow your wealth quickly.

Here is a list of tax reduction tools can make sure you are using as effectively as possible. 

Ways to show you how to pay less tax in South Africa as an individual.

Reach out if you have any questions on the above or need help making progress in your financial life.

Email Dominic

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This article first appeared in White Investments monthly newsletter. Sign up at the bottom of this page or check out past editions here.

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Should you invest in an endowment policy to save tax as is so often recommended?

 

The answer lies in understanding the difference between your MARGINAL and EFFECTIVE tax rates. 

 

How you are taxed depends on the type of account you hold your investments in. Endowments are taxable accounts. 

Tax is taxing at the best of times.

The one thing we can all agree on is that we would like to pay less of it.

To this end many are advised to invest in an endowment policy when their MARGINAL RATE of tax is above 30%.

This is because your investments in an endowment policy are essentially still the life company’s and so you are taxed at the flat rate of 30% on all income. 

MARGINAL TAX RATE:

Your MARGINAL RATE of tax is easy to determine. Just consult the Individual Income Tax Tables that SARS publishes annually (see graphic below), see where your income fits into the scale of income bands. That % number under ‘Rates of Tax’ is your marginal rate of tax.

Marginal being each additional Rand of income is taxed by that percentage.

SARS individual income tax bands for 2025.

EFFECTIVE TAX RATE:

The taxman allows certain deductions which impact on the income tax you pay each year.

Some of the more common ones that are applicable to most individuals include:– Individual rebates. These increase with age. Under 65. 65>75. Older than 75
– Medical tax credits which include payments for medical aid premiums and other medical costs.
– Interest income allowance.
– Capital Gains Tax allowance.

The table below summarizes the case study by illustrating how the exact same income, for 3 individuals of different ages, would be taxed in practice.

 

Same income, different income tax.

You will note that each individual has the same marginal tax rate, but the older you get the more deductions you are allowed. This reduces the amount of income tax you pay.

The amount of tax you actually pay as a proportion of your income is called your EFFECTIVE TAX RATE.

The EFFECTIVE RATE of tax is significantly lower than the MARGINAL RATE. 

In fact the tax paid by someone who is 75 years old is R2,655 per month less than a 64 year old. That’s almost R32,000 per year.

This would not be the case if your money was invested in an endowment.

How much income would it take to get to an effective tax rate of 30% in your personal capacity?

About R1,350,000 of income. This is a marginal rate of 41% by the way. 

Anything below that number would mean you pay more income tax in an endowment structure than if you held the investments in your personal capacity.

Estate planning

For completeness, an endowment can be useful as an estate planning tool, and I am not implying you should never own one. But that is a potential topic for another time. 

Just be sure if you do own an endowment, it is doing the job you intended it to do!

*Assumptions in the tax calculations: An income of R514,500 plus interest income of R40,000 per year. Medical aid premiums of R8,800 per month with R2,000 in additional medical expenses. 

 

 

Reach out if you have any questions on the above or if you would like help making progress in your financial life.

Email Dominic

Follow White Investments Facebook Page for insights, motivation and sometimes a bit of fun.

This article first appeared in White Investments monthly newsletter. Sign up at the bottom of this page or check out past editions here.

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Given the governments track-record it is no wonder the signing of the NHI bill has left many concerned. 

What we know so far:

– NHI will change nothing immediately.

– It is not clear exactly how it would work or how it would be funded.

– There will be legal challenges.

– And the general consensus is that it could take up to 30 years to implement fully. Whatever ‘fully’ means.

Bottom line is we will have to wait and see what the facts are but it is going to impact each of us one way or another. 

A major concern for retirees

A major concern is that government will fund this by abolishing the Medical Tax Credit (MTC) system. This will essentially increase tax paid for members of these schemes. Less take-home pay. 

If the new NHI did not provide replacement services, and this private cover had to remain in place, it would effectively increase the cost of this cover for the user. Less income for other things.

For those not familiar with their taxes, Medical Tax Credits (MTC) and Additional Medical Tax Credits (AMTC) reduce your tax payable by allowing a deduction.

THE MTC and AMTC includes a calculation which account for medial aid premiums and additional allowable medical expenses.

People older than 65yrs can deduct more than those younger than 65yrs. 

It is designed to give some relief to tax payers who essentially fund government (pay tax) but cannot get the healthcare through the existing system. 

Abolishing this tax benefit is therefore a legitimate concern.

How much would it potentially impact on your pension take home pay?

* Assumptions: Income R450,000. Of which pension is R415.500 and interest income is R34,500.  The calculation is for a single member and the monthly premium is R10,321. This is based on an actual scenario for a 75yr old, who with his current solution pays zero tax on this income including his MTC. Naturally, changing any of the assumptions on the amount of income, the sources of income or the  cost of medical aid would alter the figures above. 

I am not sure there are too many people in retirement who would be happy with a 14% reduction in the amount that lands in their bank account each month?

I guess those seeking to implement the NHI would argue that after NHI was implemented, you would not need to pay medical aid premiums. So if you were not to get the tax credit you would still be better off. 

This would require a massive vote of confidence in this government’s ability to run the healthcare system as well as the private sector. 

Caveat: This is not supposed to be alarmist. You cannot take action until you know the facts. But it is an incredibly important aspect of your financial planning, even more so as we age. It will be a feature we need to account for in the years ahead. 

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You can own pretty much as much offshore exposure as you like these days without having to use any exchange control allowances. There are an increasing number of unit trusts or exchange traded funds which will give you exposure to any number of geographies or themes (tech/healthcare/ESG) without you physically sending your money overseas.

But there are still reasons why you would potentially want to take your money directly offshore.

Reasons to invest directly offshore from South Africa:

  • You can separate decisions between the currency and the underlying investments you own (asset allocation).
  • You can separate the sources of returns between the currency and the underlying assets. (tax efficiency).
  • Your assets are physically offshore and less exposed to any potential changes in legislation or political risk.
  • The variety of opportunities are broader than the offshore options in SA.
  • You can invest for specific future costs or events you expect to have in another country. (Liability matching – like tertiary education at a UK university for example)
  • It can be cheaper to buy exposure to the same markets on an offshore platform.
 

Invest for the right reasons – not out of fear.

I am not an advocate of knee-jerk reactions when it comes to investment planning. I certainly don’t want to promote a service using fear tactics. However, I am aware that many South African citizens feel very uncertain about our beautiful country’s  future and this is a service which can help mitigate some of the risks and give you peace of mind when done well. 

White Investments manages direct offshore accounts

I am a registered partner with a top offshore platform that gives you access to global markets in multiple currencies and securities. I worked in the UK asset management industry for 9 years and have managed offshore investment solutions since the inception of my current business. 

If you have any questions around how I can help you set up a portfolio offshore please get hold of me here.

*Terms & Conditions apply.

The best way to get something done is to begin…

If procrastination is the thief of time, and time is one of the biggest advantages you have when investing, what are you waiting for?