Brainer: Tax-free investing
Please note that this article pertains to the 2019/2020 tax year. For more updated information, please read our article: Starting the new tax year right! "Brainer"
South Africans are notoriously bad savers, which is why the government launched tax-free investments in 2015 to encourage people to save more. Since then tax-free investments have grown tremendously in popularity, and for good reason too. They are flexible (in that you can start and stop contributions at any time, without penalties), the underlying funds don’t charge any performance fees, and best of all… returns are exempt from local income tax, dividends tax and capital gains tax. These are just some of the benefits of this great investment vehicle. To find our more, we’ve put together a list of some frequently asked questions about tax-free investments below.
How much can I invest?
The maximum amount that you can invest for the tax year is R33,000 (your annual limit), while the maximum amount that you can invest over the course of your lifetime is R500,000 (your lifetime limit).
What happens if I contribute more than the maximum limits?
SARS will tax your excess contributions (i.e. the amount above the maximum limits) at a rate of 40%.
Can I withdraw from my investment?
Yes. You can withdraw from your investment at any time and without penalties. Withdrawals usually take between 24 – 48 hours to reflect in your bank account. As a rule, payments from your investment can only be made into a bank account held in your name (no third-party payments are allowed).
Which funds can I invest in and how much does it cost?
As shown in the table below, we’ve hand-selected eight of our top funds for you to invest in as tax-free investments at a reduced cost.
What happens to my investment when I die?
Your investment will form part of your estate upon your death and be subject to estate duty. As tax-free investments cannot be transferred from one individual to another, your investment will need be liquidated and paid to either your nominated beneficiaries or retained within your estate and distributed according to your last will and testament.
How do I invest in a prudential tax-free Investment?
If you are a new investor, simply complete the application process online or download the tax-free application form. If you are an existing tax-free investor and would like to add to your investment, you can submit your instruction via your online account or complete the tax-free additional contribution form.
You can also access a more comprehensive list of frequently asked questions here.
To invest now, simply complete an online application form.