Laura du Preez | 21 November 2023
Laura du Preez has been writing about personal finance topics for more than 20 years, including eight years as personal finance editor for two leading media houses.
South Africans and their families are increasingly becoming global citizens and their need for good expert advice on tricky cross-border money issues is greater than ever.
Many more South Africans are investing offshore, working overseas, emigrating or leaving inheritances to family around the world than ever before, a panel of experts agreed at the Financial Planning Summit, organised by the Collaborative Exchange, this week.
They need advice from advisers with suitable expertise on the best way to manage their money through all of these activities, Kobus Kruger, author of The Practical Guide to Offshore Investing, said at the summit. Read more: How can I find a good financial adviser?
Tax and exchange controls are the two big issues, he says.
Lauren Walker, sales and business development manager at foreign exchange dealer, Currency Partners, said at the summit that South African individuals sent more than R100 billion offshore each year for the past four years, according to Reserve Bank statistics.
Kruger said the trend is unlikely to be reversed soon because there is a lot of negativity about the local economy and because it is good advice to diversify into other financial markets.
Over the past 10 years the rand has halved against the dollar. The long-term mega-trend will therefore continue with shorter periods of rand appreciation being used to buy offshore investments at favourable rates, he said. Read more: How can I invest safely offshore?
Walker says around R5 billion a year is also leaving the country as inheritances to children and other heirs who have left South Africa.
Kruger said this is a result of many younger South Africans leaving the country over many years. As their parents die, they are leaving money to their adult children around the world.
Financial planning is not only about investments - it is also about intergenerational wealth planning and estate planning. This includes planning for transfer of wealth to heirs in other countries, Kruger says. Read more: What is an estate?
When beneficiaries are in different tax jurisdictions and subject to a foreign country’s regulations they need careful advice from those with the relevant knowledge, he says.
A good financial adviser should alert South Africans with family living overseas to the complexities and issues their heirs will face when they inherit South African assets, Kruger says.
For example, when a South African life policyholder dies and leaves money to adult children overseas, life insurers will only pay the proceeds into a local bank account, he says.
If the adult children have never formally emigrated or have not followed tax emigration – they will need advice on how to get the money out of South Africa, he says.
Walker says many South Africans who are now living overseas do not understand South African residency and exchange controls. They wrongly assume that because they have lived overseas for many years and lost their South African ID documents that they are non-residents.
South Africans who did not formally emigrate by following a process with the South African Reserve Bank when this was still required, or who have not completed the more recent tax migration, will need to make use of their R1 million annual discretionary exchange control allowance or their R10 million foreign investment allowance. The latter requires tax clearance from the South African Revenue Service.
Walker says some South Africans leave offshore investments to adult children overseas. The heirs are often unaware that they can transfer the investment in their own name without moving it to another financial institution.
Exchange control regulations also changed recently so they no longer have to report the transfer to the Reserve Bank, she says.
Kruger says South Africans are also inheriting money from relatives overseas and are unaware that there are some pitfalls when owning direct offshore investments.
You should get advice so you do not, for example, transfer a bank account, potentially with thousands of pounds, US dollars or euros, into your own name and create all sorts of problems for yourself, he says.
Andreas Krensel, an immigration practitioner at IBN, told the summit emigration, largely to UK, Australia, the US, Germany, the Netherlands, Ireland and Portugal is likely to continue.
He says it is becoming possible for South Africans without foreign passports or specialised skills to emigrate to Europe as the continent is looking for tradespeople.
At a webinar for investment platform INN8, Natalie Williams-Ashman from Immigration South Africa, said South Africans should stop thinking about a cut-and-dried immigration and taking all their money out of the country without understanding the tax implications.
They should instead think about securing global mobility and being able to access opportunities wherever in the world they arise, she says. Going to work in another country for a few years will help you make informed decisions, Williams-Ashman says.
Emigrants often underestimate the cost of property and childcare in other countries. They do not always get the right advice about residency, citizenship and who will qualify for healthcare in a foreign country, she says.
Where your money sits and what it is invested in is far more relevant than taking it all out of this country, she says. If you settle elsewhere permanently, then get advice about where best to invest for your needs, Williams-Ashman advises.
Too many South Africans emigrate with their retirement and other savings - incurring high withdrawal taxes and capital gains tax (CGT). They later return to South Africa with nothing, when they could have left the decision on financial emigration until they have a better idea of what they want to achieve, she says.
Kruger told the Financial Planning Summit that South Africans who take up employment opportunities overseas need advice on the exchange controls, tax and whether or not to repatriate all their earnings.
He says South Africans who emigrate also need advice because they often have financial products that are not suited to their adopted country. For example, the go-to solution for wealthier South Africans investing offshore is an offshore endowment, but South Africans who tax migrate may not need these products, he says.
Walker said South Africa has over the past two years attracted more than R20 billion a year from individual foreign residents investing in property. The outflow of individual foreign residents’ capital was, by contrast, consistent at around R5 billion despite all South Africa’s challenges, she said.
Krensel and Alexa Horn, managing director of Dogone Group Property, said the quality and value of property and lifestyle that foreigners could buy here were the reasons for this.
Horn says most foreigners buying property in South Africa do not bring the bulk of their wealth here. They buy property to get an incredible lifestyle using money they can afford to gamble with, she says.
Kruger says South Africans should similarly enjoy the lifestyle here and allow their money to emigrate through well-planned offshore investments.
