AA - July 2020

Author:  Staff Writer
5 July 2020

This little tax-haven island off England is/has become a poplar spot for South Africans to invest       

Managing one’s investments in the midst of a pandemic is no easy task, no matter where you reside. South Africans, however, face a far more complex environment when considering where their money is safest in a post Covid-19 world. Confidence in the local investment landscape is markedly depressed.

With unemployment rates skyrocketing, the growing effects of the Moody’s downgrade, and our ailing State-Owned Enterprises, it is difficult to be optimistic about investing locally.

South Africans are increasingly looking to invest overseas in order to protect their assets against a weakening currency, geopolitical uncertainty and a growing tax burden at home. The Channel Island of Guernsey has emerged as one of the leading overseas destinations to protect and grow one’s wealth.

Guernsey’s so-called ‘40(ee)’ international retirement plans offer a range of retirement planning and other benefits that make them ideal for internationally mobile South Africans, wherever they happen to be working or living.

The plans are named after Section 40(ee) of the Income Tax (Guernsey) Law, which allows Guernsey-based Retirement Annuity Trust Schemes (RATS) that are open to non-Guernsey resident members to make payments to non-Guernsey residents without deduction of any Guernsey tax.

“Many South Africans still find the idea of saving and investing offshore a bit daunting. Investing through a 40(ee) retirement plan can make offshore investing simpler and more accessible, and offers additional benefits such as capital security, tax efficiency and sound succession planning,” said Leah Mannie, a consultant at Sovereign Trust (SA) Limited.

Sovereign’s own multi-member 40(ee) plan – branded as the Conservo International Retirement Plan – is an effective retirement planning, estate planning and diversification tool that is particularly suited to the needs of South Africans.

Unlike traditional pension schemes, there is no centralised pot of funds; members’ retirement funds are instead held solely for their own benefit in a trust-based structure.

The Conservo Plan is typically funded by either a cash contribution or the transfer of existing assets to the retirement plan.

These assets can be in the form of anything from cash to investments, and in certain circumstances more bespoke assets such as artworks or even shares in underlying private companies.

There is no limit to the level of contributions or to the fund size, and payments can be made in any recognised currency and at any time, either as a lump sum or regular income payments.

The assets held in a Conservo Plan are free from income tax and capital gains tax (CGT) in Guernsey because they are held in a Guernsey retirement vehicle, so the growth on investments can be optimised. And in certain circumstances, there will be no tax liability in South Africa when benefits are paid to a South African resident.

Another major selling point is the Conservo Plan’s flexibility in terms of benefit payment. Since there is no actuary dictating how much the member is allowed to withdraw, they can withdraw the full amount as a single lump sum distribution if they choose after the age of 50.

Benefits can also be taken in the form of multiple ad-hoc lump sum distributions, or regular income or a combination of both. Members can also take a loan of up to 50% of the fund value before they are 50.

The Conservo also offers a range of succession benefits. Upon the death of a member, the trustee can pay the balance of the fund to their estate and/or to the member’s dependents, relations, or other individuals, as nominated by the member.

“We’ve long been encouraging South Africans to make use of the SA Reserve Bank’s generous R10 million foreign investment allowance to diversify their estates and gain offshore exposure,” said Mannie.

“According to the Davis Tax Committee (DTC), foreign trust-based arrangements fall outside of the judicial purview of the SA Revenue Service (SARS) because they are non-resident in terms of the Income Tax Act.

“While income from foreign pensions is taxable, unless the pension was funded by an employer for services rendered overseas, individuals can make use of a foreign pension provided it is used for the purpose for which it is intended – to provide an income in retirement.”

The Conservo International Retirement Plan offers the following benefits to South African taxpayers:

  • Assets are protected in a safe environment that is unaffected by political and economic turmoil, while they enjoy tax-free growth;
  • Contributions can be made, regardless of where in the world the member is based;
  • Contributions are very flexible and can be tailored – increase, decrease, ad hoc deposits or cease contributions – to fit a member’s current personal circumstances;
  • Retirement benefits may be accessed from age 50 and the member may elect whether to receive – ad hoc lump sum distribution(s), regular income drawdown or a combination of both;
  • If structured correctly, the plan is favourable in terms of estate planning;
  • Assets are protected from creditors and can transfer seamlessly to nominated beneficiaries on a member’s death.

The original article can be viewed here: