MONEY CLINIC | My wife and I are expats. What is the best way to have our R500k investments paid out?

A Fin24 reader and his wife want to know how to go about having their investments paid out and the tax implications thereof.

He writes:

I have two investments which were set up a few years ago at R500 000 each. The first investment was set up in a way that the interest is paid out (average of R4 000/ R5 000 per month). My wife has been using this monthly amount as she has had no income for the last three years, and spent this mainly to have some financial independence and trying to start her own small business ventures.

The second investment will pay out about doubled in value, about R400 000-R450 000 in interest.  

What is the best way to have these investments paid out and to where?

• Can we look at tax-free savings accounts (can we benefit from these types of accounts) and how will this be taxed on the interest (as the total lifetime exception is about R500 000)?

• Can we move this to a retirement annuity and how is this taxed on the interest (if we decide to add to our existing retirement portfolio)?

Are there other options we can consider or investigate? 

Lastly, we currently live in Europe and I have a year left on my expat assignment and we may extend that for another year. If we can extend the assignment, we are potentially looking at using that money as a down payment on a small flat.

Ryno Viljoen, CEO of FinGlobal responds: 

The request for information relates to two specific short-term investments only. It is however good financial practice to understand your total financial landscape, as this would render the advice provided more appropriate. 

It is also assumed that you will be returning to South Africa and that you intend to retire here. 

The Tax-Free savings account is a great investment vehicle to save funds that you want to remain accessible. You can contribute a maximum of R36 000 per individual per financial year with a lifetime total limit of R500 000. Unfortunately, you cannot contribute the whole R500 000 once off. This would mean that both you and your wife could contribute R36 000 per financial year towards a tax-free investment plan.

All growth, dividends, and interest earned in the Tax-Free Investment plan is tax-free. You are therefore not limited in growth within the investment but only your contributions. You will have full access to these investments and can withdraw the funds at any point, however if you withdraw funds in a certain year you will not be able to put those contributions back in that same financial year.

This can therefore serve as a great structure to save funds that you would need access to before 55.

The Retirement Annuity is a great investment vehicle to save towards retirement savings. These funds will only be accessible at the age of 55. These investment vehicles are somewhat restricted as the primary aim is to save towards retirement. You do however get great tax benefits as your contributions towards this investment are deductible against your taxable income. You also don’t pay any tax on any growth, dividends, or interest earned in the Retirement Annuity Fund.

You would therefore get the tax benefits of contributions and tax-free growth within the investment. 

Special attention should therefore be given to your needs and whether you wish to transfer the funds abroad or keep the funds in South Africa. 

There are alternative options which can be considered to address your need for a regular income. You can consider the option to invest the funds in a unit trust account and withdraw an income from the investment or invest in a guaranteed income product that would pay you a certain income for a fixed period after which the initial capital value is returned to you. In both these instances, you would need to consider your personal tax, liquidity, legal and unique circumstances. 

The information given is factual information only. It is important to consult a qualified financial planner with the necessary experience to guide you through the multiple factors of setting up a financial plan. 

Questions may be edited for brevity and clarity.