90 – The pros and cons of investing funds offshore

by | Oct 15, 2024 | Estate Planning, Offshore

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

It is easy to invest funds offshore. Your financial adviser or a currency specialist can convert your rands into dollars very quickly. Each individual is allowed to take R1-million offshore each year with relative ease. This is usually referred to as your travel allowance. In addition to this, if your income tax affairs are in order, you can take a further R10-million overseas each year.

The next question is, what should you do with this money once it is offshore? 

Many people leave their money in a bank. This is not always the wisest course of action, as overseas bank rates are very low. There may be merit in investing in some growth assets. 

Despite their poor performance this year, global equities – when converted to rands – have been the best-performing asset class over the past five, 10 and 15 years, as can be seen in Table 1. 

 Besides not providing you with inflation-beating returns, an offshore bank deposit will incur a lot of unnecessary costs and complicate the wrapping up of your estate at the time of death. 

I usually recommend that people invest their offshore assets in an offshore wrapper such as a global endowment. As you can attach a beneficiary to it, you do not have to deal with the hassles of probate.   

Also, even though the investment is housed offshore, it is deemed to be an asset in your South African estate, so you only have to pay South African estate duties ­rather than the potentially higher offshore death duties. 

In terms of the proportion of assets you should have offshore, a model that I often use is seen in Table 2. 

If you are a conservative investor, you should have 25% of your assets offshore, and, if you are aggressive, you could go up to 40%. 

I would recommend that you chat to your financial adviser about how to go about reducing the risk of having all your assets in one country.  

KENNY MEIRING IS AN INDEPENDENT FINANCIAL ADVISER

Contact him via phone, email or via contact phone on the financialwellnesscoach.co.za website

Read more of our articles on the Daily Maverick website or newspaper weekly!

Dec 02 2024

189 – Retirement and risk cover options for employees

Question I have a business with 20 employees.  I would like to put in some kind of retirement fund for them.  Is this financially feasible for our sized company? If so,...
Dec 02 2024

188 – Finding the right annuity for you takes thought

Question I recently heard someone talking about a with profit annuity.  I only know about living annuities and guaranteed life annuities.  How does a with-profit...
Dec 02 2024

187 – What to do if you get retrenched

Question I have just been retrenched and I'm feeling quite overwhelmed by all the decisions that I need to make.  Do you have any suggestions on what the big pitfalls...
Dec 02 2024

186 – Making the most of a medical aid on a budget

Question I would like to join a medical aid after not being on one for the past two years.  I’m 39 with a young child and can only pay around R3 500 a month. I’m...
Dec 02 2024

185 – To quell chaos, your business needs its own will

Question I recently heard someone talking about a will for a business. How does this work?Answer A will for a business documents what should happen to your interest in...
Dec 02 2024

184 – Products that can give employees peace of mind

Question A colleague has recently been diagnosed with cancer. He is going to be unable to work properly for at least three months.  The company will pay him his basic...
Dec 02 2024

183 – Measures to take to ensure that your offshore assets are protected

Question A friend’s husband passed away earlier this year, and the executor says it will take at least three years for his estate to be wound up because he owns shares...
Nov 20 2024

120 – The new two pot retirement fund

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...
Nov 20 2024

121 – Why you should have separate offshore wills

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...
Nov 20 2024

122 – How utilising a living annuity can maximise the financial health of your heirs

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...

Download the Life File