Tim had led an interesting life. As a highly respected quantity surveyor he had had his own practice initially, but for the last 10 years he had worked for a large corporate, earning a good salary and contributing to the corporate’s pension scheme. At age 56 he had a close shave when the company offered him, and anyone over the age of 55, early retirement during the Covid pandemic resulting in a dearth of new business. Tim discovered that he had nothing like the kind of savings he needed to retire anytime soon, and with business not really picking up, there was talk of voluntary retirements turning into retrenchments.

Some voyages are easy map, Tim’s was not. The long-term solution to this dilemma would mean some drastic changes for Tim, and most of those changes were in his mindset, not his portfolio or asset allocation. In a rough, offroad, rugged voyage like Tim’s, everyone has to hang on tight, have tough conversations and make some gut-wrenching decisions. The first issue we had to tackle was Tim’s income security – obviously quite precarious where he was now. The obvious solution was for him to either get a more secure job that paid more (probably offshore) or to restart his own practice (that he had abandoned in his 30s). To help Tim come to the right decision for him and his family, we had to look at a few different maps and future paths. Wealth is what is left over after you (and the taxman) have consumed your income. Tim was in the top marginal tax bracket, with little by the way of tax allowances in the corporate environment, so the tax man was taking a large chunk of his earnings – so working for himself - in one way or another would be a simple way to reduce this tax and increase his disposable income. The South African construction environment was in the doldrums, so an offshore stint or two looked attractive. A wealth blueprint was drawn up as part of Tim’s future business plans. When he had an offshore job setup, he accepted a voluntary retrenchment package, preserved his pension, rented out his house and he and his wife set off on an adventure to secure the retirement he wanted – not what was being foisted on him. Because he decided to keep RSA as his base, we had to work with a tax specialist to navigate the (still opaque) residential tax status that SARS has inherited from the Reserve Bank.

Louise (54) is an entrepreneur with a highly successful, cash-flush company –with her (3rd) husband Frank. Louise, Frank and two other partners own the company (valued north of R80m). She has 2 grown children, one from each previous partner and a younger child with Frank. Frank also has 2 children from a previous marriage.  The adult children, while grown, are not financially independent and an ex-spouse finds themselves requiring assistance as well from time to time. Almost all their wealth is tied up in the company, with no dividends being declared as all proceeds are used to grow the company.  Apart from some small investments (less than R1m) neither of the couple have liquid investments to speak of but they have 3 properties. They consider the company as their retirement fund. They both want to leave their estates to their children – so the Estate and Will becomes really complicated. Once they sell the company, they want to travel extensively but retire in South Africa. They are married ANC without accrual.

Louise and Frank’s voyage is complicated, but interesting. When you get a complicated offroad, muddy, cross-country adventure like theirs it is important that it is not just about reducing all the assets, liabilities and wishes in a document – it is much more important that we understand the plot of the voyage to this point. Figuring out anyone’s new itinerary is not an academic exercise, it has to be holistic and forged together – with the clients, planner and asset managers so that it has every chance to succeed. The Assets on a balance sheet are merely some of the building blocks for that new future.

The first focus for Louise and Frank was their most important future blueprint-  their retirement. This was not a quick solution. Investments outside of the company and properties had to be created over time, and the company started to declare dividends. Buy-and-Sell policies were put in place to create liquidity in the company should any of the directors die prematurely.  Long dormant retirement annuities were resurrected, and optimised to maximise the tax allowances and reduce estate duty. An offshore account was opened, and the maximum offshore allowance used annually, for a growth-orientated offshore nest egg. The company can still provide for their retirement without the necessity of it being sold, and they have time to build a succession team which will make the company easier to sell or continue to produce a great dividend. The new itinerary is going to have to be reviewed frequently and tweaked often to keep the new voyage on track.

David (72) has accumulated a decent share portfolio during his lifetime as an entrepreneur, never having much truck with pensions and the like. When he sold his company, that capital was also turned into local and offshore share portfolios, with the intention of living off portfolio dividends for  retirement. The dividend flow from the portfolios by default are uneven, so in 2017 David instructed the stockbroker to pay him out a monthly rate based on the annual average of the previous year. This was increased every year or so. Recently it became obvious that the local capital was not growing, and it had started to shrink.

This is when his financial advisor came into the picture. A simple analysis of his share portfolio showed that the dividends only made up 65% of the amount he was paid out annually, and shares were being sold to make up the rest.  There was also significant ‘share concentration’ from 4 shares that had been held for many years. They had historically done well, but now made up more than 40% of the portfolios, creating risk. David and the Stockbroker had been reluctant to sell down these share concentrations because of capital gains tax. Adding to his potential problems, his offshore portfolio had grown to a size which could trigger onerous estate duty without the option of leaving the assets to his wife pre-tax. The Advisor and Asset manager team designed a new wealth voyage by ringfencing an income producing block to ensure sustained, income with certainty over time, without capital erosion. The rest of the assets were then managed in local and offshore growth portfolios. Offshore investments were placed in a survivor account with David’s wife to assist with ease during the estate duty process. , The new map is simple, flexible and inexpensive. No high fee Trust/quasi-Trust structures. No overt links to RSA (found in many other solutions like Allan Gray, Old Mutual, Discovery, Investec). One Will.

Kerry and Hank (mid 50s) have made the decision to move overseas. They have both got jobs set up in Dubai in the next year (where permanent residency is unlikely). They intend to move into Europe later and retire outside of South Africa. They have a house here, retirement annuities, pension funds and investments.

Kerry and Hank are taking things slow – this is great, the more time you give yourself to tax-emigrate the better. Although “Financial Emigration” through SARB no longer exists (but they still govern forex transfers), emigration is now the responsibility of SARS – and is actually more complicated, not less. Emigration still triggers CGT (Capital Gains Tax), whether or not you sell the asset. This is where Kerry and Hank has a time advantage as they work closely with an emigration accountant to optimise the transition.

Its important to have access to a flexible offshore investment/banking solution which over time can house Kerry and Hank’s assets as they migrate. In accordance with their wishes annual forex transfer allowances were coincided with periods of Rand strength to maximise their offshore account. Although they were considering not retiring in South Africa, the retirement funds were not needed for the move overseas, so these were not cashed in (which would have resulted in a nasty tax knock) and their fate will be monitored on a yearly basis. Because they are both close to the official retirement age (55) there will be the option of ‘retiring’ from the funds, putting them into living annuities. The house has been on the market for a few months, and they might need to rent it out until the market improves. All of these decisions will impact on the SARS tax-residency status – and underlines the need for a flexible plan with close and frequent oversight.