Question

I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate of 41%. Is there anything that I can do to reduce this amount?

Answer

This is a situation that is common to many South African parents and a bit of planning can make the whole inheritance process a lot easier.

 Those children living abroad fall into two categories.

• Those who have formally emigrated

These have left the country and “emigrated financially” or have notified SARS that they are no longer ordinarily resident in South Africa.  They would be taxpayers in another country and not be liable for tax in South Africa.

It would be a fairly simple process to move the inheritance to their country of residence. They would typically open an account with a local currency exchange and the executor would pay the proceeds of the inheritance into that nonresident account. 

• Those who have not formally emigrated

These would be people who are working overseas or who have been living overseas for an extended period. They have not got around so doing the paperwork to notify SARS that they are no longer ordinarily resident in South Africa.

If they have a barcoded South African identity document, they would be allowed to take out R1 million a year as part of their normal allowances.  If they have a South African tax number then it will be relatively easy  to take out a further R10 million a year.

If you have children who fall into this category, I would strongly urge you to get them to scratch through all their boxes of documents and find their old barcoded South African identity document and tax number and keep it in a safe place.

If they have not got the bar-coded ID and do not intend returning to South Africa, then now would be a good time to notify the authorities that they are no longer ordinarily resident in South Africa.  This would require some paperwork.  They would need to supply items like

• proof of identity and residence
• the exit stamp from South Africa on their passports.
• declaration of their worldwide assets.

They would also be required to pay CGT on the value of the qualifying assets as at the day before they ceased to be ordinarily resident in South Africa. 

Move some of your assets offshore

It is generally a good idea to have your assets spread throughout the world. I usually recommend that my clients have about 40% of their assets physically located outside of the borders of South Africa.

It could make the inheritance a lot smoother if you bequeath some of these offshore assets to those children who are living abroad. 

Remember, if these assets are not in a structure like a sinking fund or endowment, then you should have a separate will for your offshore assets. 

 If you have two wills, I recommend that you have these wills checked by your executor.  I have heard of  two instances where the Master of the High Court refused to accept a will pertaining to offshore assets of a deceased, because they interpreted the revocation clause in the South African will as also revoking the offshore will which was dated earlier.  This resulted  in the offshore assets being distributed intestate.  The wording of your wills must be 100% correct.

As you can see, a bit of planning ahead of time, can make the whole inheritance process a lot easier. I would strongly recommend that anyone with children living abroad raise this as a topic for discussion when next they meet with their financial advisor.