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Make the most of your Rands with an offshore retirement annuity trust

by Niel Pretorius | Mar 22, 2016
  • Rand volatility and long term depreciation are here to stay. With a ratings downgrade on the cards, it is important for South Africans who want to preserve their wealth, to diversify their retirement plans. An offshore retirement annuity trust (RAT) is one of the best international retirement savings products a South African can invest in.

    The Rand's long term prospects

    The long term downward trajectory for the Rand against the major global currencies is likely to remain in place for many years. If you want to preserve your wealth well into your retirement, then it is best to not keep all of your savings and assets in local currency.

    To put things into perspective, the South African economy makes up less than 1% of the entire global economy. As an emerging market, it is subject to volatility that developed economies are not. In addition to this, the low commodity prices and the risk of a rating downgrade could see the Rand fall to R17.50 to the US Dollar. It is clear that everyone in South Africa should look abroad to preserve their wealth.

    Consider the Rand's performance over the last 5 years

    Tracking the JSE All Share Index, an investment of R100,000 five years ago would be worth R169,560 today. Not a bad gain - almost 70%, you might say.

    However, in that time the Rand fell from R6.76 to R15.38 to the USD. Had you simply purchased Dollars, your investment would now be worth R227,514. A gain of 127% for keeping notes under your bed.

    If you had invested those USD in the MSCI World Index over this period, the yield would have been about R328,885. This results in a gain of almost R160,000 more than the return from the Rand investment.

    Tax-efficient diversification

    Although relatively unknown to South Africans, offshore retirement annuity trusts have been around for about 10 years. The tax treatment of these structures has been tested through the various investment cycles – establishment, investment, withdrawal and death – and they are one of the most tax efficient investment and planning structures available in the country.

    Structural and tax advantages

    Besides the currency hedge, there are other beneficial features to offshore RATs, such as:

    1. Recognition as a valid trust, which is a separate tax payer from the member, for SARS purposes.
    2. Considered to be a non-resident in South Africa, unless it becomes effectively managed here.
    3. Members will not be taxed on the income of a RAT prior to the withdrawal of any benefits. However, if a member chooses to receive an annuity, he will be taxed thereon.
    4. A lump sum received from the RAT will generally not be taxed in the member’s hands.
    5. No donations tax will be levied on amounts contributed to the RAT.
    6. The assets of the RAT will not form part of the member’s estate for estate duty purposes.
    7. Distributions made from the RAT may be retained abroad.
    8. If any distributions made are subject to income or capital gains tax, such tax can be paid from the member’s SA situated assets.
    9. It can be combined with a foreign company to take advantage of the foreign dividend provisions of the Income Tax Act.
    10. It can hold virtually any asset class.

    Combining your RAT with other assets

    We can effectively combine the RAT with several underlying assets to give you a great combination of security and growth prospects. This restructuring will also provide you with massive savings in your tax and estate duty planning.

    If you’d like to chat about your offshore pension options, or if you need any other investment advice, give me a call on +27 21 657 1578. You can also send an email to me on and I’ll get back to you.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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    Sable International is a trading name of 1st Contact Money Limited (company number 07070528), registered in England and Wales. We are authorised and regulated by the Financial Conduct Authority in the UK (FCA no. 517570), the Financial Services Conduct Authority in South Africa (1st Contact Money [PTY] Ltd - FSP no. 41900) and hold an Australian Financial Services Licence issued by ASIC to deal in foreign exchange (1st Contact Group - AFS Licence number 335 126).

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