Take every opportunity to achieve financial independence through out your life. Its never too soon to start.
There are numerous investment products that allow you to maximize your investment growth. In this article we will be looking at Tax Free Investments. You can have a look at Retirement Annuities in next week’s article.
A Tax-Free Investment allows you, and each person in your family, to earn a return from a range of different
unit trusts without being taxed on the income or capital gains. You make your savings work harder by not
paying tax while you are invested or when your investment pays out. The taxes you save remain invested to
grow, which makes an enormous difference in the long term.
The Benefits of Tax Free Investments:
- Tax: The interest, capital gains and dividends you earn are completely tax free.
- Estate planning: Your investment can be paid to your beneficiaries and there are no executor fees.
- Withdrawals: Investment values are liquid. No penalties apply. It takes about 6 business days to receive the money. Note that a withdrawal does not affect the R33 000 that you are allowed to contribute annually but the maximum of R500 000 over your lifetime will always apply.
- Changes: You can pause, change, stop and start your monthly debit orders as you need to without incurring extra costs. T’s and C’s Apply to platform minimums.
- Affordability: You need a minimum of R500 a month or a single lump sum of R15 000 to invest.
You can invest up to R33 000 per year with a maximum of R500 000 over your lifetime – across your entire portfolio of tax free investments at different companies. If you contribute more than R33 000 per year – SARS will apply 40% tax on the excess amount – We can help you consolidate your investments to ensure that this doesn’t happen.
These are the tax savings and how they affect your returns:
- No Dividend Withholding Tax is deducted in a tax-free investment: 20% of any dividends are usually deducted in the unit trust directly from the dividend amount and immediately decreases the return the unit trust earns. In a tax-free account, DWT is not deducted.
- Income and Capital gains tax (CGT): Any interest or capital gain must be declared to SARS and if they are above the tax thresholds you will be liable for tax on your return. (This is calculated according to your marginal income tax rate). The thresholds are R23 800 of interest income and R40 000 of capital gains income for people under 65. If you are above the thresholds, you will benefit from income and CGT savings in a TAX FREE INVESTMENT.
Contact us to schedule an appointment to review your financial plan and investment portfolio.
Stephen Cloete and Associates
087 160 0877
