Saving and alternative savings vehicles are important to everyone, and they underscore the need for more robust strategies to foster a savings ethos and ensure that all individuals are well-informed about the diverse financial instruments and opportunities available to them.
Contrary to popular belief, going offshore is not something that is limited to the rich and famous. Instead, offshore opportunities are more accessible than many may think and can be done cost-effectively when structured properly. Much of the success and effectiveness of going offshore, is a subtle change in mindset. It centres on the premise that this savings vehicle is built around planning with purpose as opposed to solely planning for tax purposes.
This structuring is done with longevity in mind. As such, people need to ask themselves whether they want to protect their assets whilst living or for the family’s legacy upon demise or both.
Let me turn the spotlight to investment savings trusts and international retirement plans.
South Africans can set up an international retirement plan with a minimum of £25 000. This investment does not attract any tax in Guernsey, and there is no need to make regular contributions to the plan. Furthermore, there are no limitations on the number of contributions a person would like to make over time.
Some might question the reasons for going offshore in this way. However, with hard currency investment choices, political instability, wealth preservation, and more effective retirement planning, all combine to make this an effective option. It also provides South Africans with an efficient structure for the safety, protection, and growth of their assets in hard currency as well as a secure and reputable jurisdiction with a stable economic environment.
When it comes to funding such an international retirement plan, South Africans can use their after-taxed funds to contribute. Some have funds sitting offshore already that have been cleared by the SA Reserve Bank. These individuals generally like to consolidate and invest part of their funds in the retirement plan. As such, the main member will contribute the funds to use their allowances or leverage the funds that are already offshore.
However, no third party can contribute to this plan. The only exception is if a spouse gifts to the fund. As part of this, there is no donations tax associated with the fund. Of course, tax clearance will be required for values above ZAR 1 million. Distributions will be made from the capital component first and then move over to the capital gain component once the capital is depleted.
A matter of trust
The main purpose of an offshore savings trust is to provide individuals with a vehicle to secure their wealth which is currently held in a volatile currency. The vehicle utilised is a trust which means that all the benefits traditionally associated with a trust, are available within the savings trust.
Some of the advantages of going with an offshore trust include flexibility, efficient tax, and succession planning. Individuals can also save on executor’s fees while protecting their assets. Even though assets in someone’s personal estate are frozen during the finalisation of a deceased estate, trust assets are accessible at all times. To add to this, trusts offer the opportunity to reduce ones tax burden, and these can include estate duty, income tax, capital gains tax, donations tax, and transfer duty.
Consider an investment savings trust for offshore investments through direct holdings within the trust. An investment advisor can be appointed as well to assist with the investment direction rebalancing. A savings trust can hold direct investments, such as platforms, bonds DFM and invest in direct funds.
There are two ways to fund this trust:
Donation: Values above R100,000 will incur a 20% donations tax. When the settlor contributes to the trust via a donation, attribution rules will likely apply when there is growth.
Another avenue to settle a trust is with an interest-bearing loan: The loan agreement must include market-related interest in the currency of the loan. Without this, it could be seen as a donation, triggering donations tax. The interest rate must meet specific requirements, and the loan must be on commercial, market-related terms.
Trustees will draft a loan agreement with interest paid annually or on the anniversary date of the loan and the trustees must act in the beneficiaries’ best interests, unlike retirement plans, which benefit only the main member.
It is important to understand the various structuring options by heeding the advice of experts in the field. They will be able to provide the best advice based on different scenarios. Offshore planning and saving for the future are not a one-size-fits-all approach.
With all of the options available offshore, be sure to understand what is required of you as an individual and what you are able to do within your country of tax residency.
