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Guernsey offers SA investors a secure, tax-efficient ‘offshore’ option

South African investors are increasingly turning to Guernsey’s ‘40(ee)’ international retirement plans to protect their assets from the ravages of tax and currency depreciation.

These plans are named after section 40(ee) of the Income Tax (Guernsey) Law 1975, which allows international Guernsey-based Retirement Annuity Trust Schemes – known as RATS – to make payments to non-Guernsey resident individuals without deduction of any Guernsey tax.

There is no limit to the level of contributions or to the fund size (although both should be appropriate to a member’s circumstances), and payments can be structured to suit the individual – a mixture of lump sum and regular income payments that can be made in any recognised currency and at any time. As a result, ‘40ee’ international retirement plans are ideal for internationally mobile South Africans, wherever they happen to be working or residing in the world.

Sovereign’s ‘40ee’ plan – branded as the Conservo International Retirement Plan – can be specifically tailored to the South African market and is a very effective estate planning and diversification tool. These plans differ from traditional pension schemes because there is no centralised pot of funds. A specific account is established for each plan member, which is segregated from other members’ assets ensuring that a member’s retirement funds are held solely for their own benefit.

South Africans are able – and even encouraged – to make use of the South African Reserve Bank’s generous R10 million foreign investment allowance to diversify their estates and gain overseas (‘offshore’) exposure. They are also able to move existing offshore assets into the Conservo. The portfolio can hold a wide range of investments, including shares in listed and private companies, derivatives and physical assets, such as art, but consideration must be given to how any investment will provide an income in retirement.

Most South African investors want to diversify their portfolios, but find the idea of investing overseas a bit daunting. Their major concern is that they want to be sure that their hard-earned money will be properly looked after. This is why the Conservo has captured the attention of so many investors. While protecting your wealth in a stable environment, the Conservo is flexible, allowing investors to take advantage of their SARS allowance and giving them options for planning down the line.

The assets within the fund are free from Guernsey income tax and capital gains tax (CGT) because they are held in a Guernsey retirement vehicle. As a result, the growth on investments can be optimised from the outset. The Counsel opinion suggests that there will only be a taxable event when the growth portion of the funds is accessed but, if the amount drawn down and returned to South Africa does not exceed the capital investment, there would be no liability to tax in South Africa.

Another major selling point is the Conservo’s flexibility. Unlike a traditional pension scheme, there is no actuary to prescribe how much income a member is permitted to withdraw. The member attains full access to the funds between the age of 50 and 75 and they can choose to draw down in a number of ways to suit their needs. Prior to the age of 50, a loan of up to 50% of the fund value is also permitted.

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

The Davis Tax Committee (DTC) made some recommendations and observations in relation to offshore retirement structures in its final report issued in April this year. It concluded that foreign trust-based arrangements fell outside of the judicial purview of the South African Revenue Service (SARS) because they are non-resident in terms of the South African Income Tax Act. This means that properly structured and administered trust-based arrangements continue to offer a gross roll up environment.

In respect of foreign retirement plans, the DTC concluded that income from foreign pensions was taxable unless the pension was funded by an employer for services rendered overseas but there was no reason why an individual should not make use of a foreign pension provided it was used for the purpose for which it’s intended – to provide an income in retirement.

The Conservo therefore offers:

  • Tax efficient growth in South Africa and Guernsey
  • Freedom to choose investments
  • Ability to draw loans Ability to hold funds in multiple currencies
  • No requirement for an annuity
  • Flexibility if the member re-locates to another country
  • Exemption from South African estate duty
  • A cost-effective pricing structure

The bottom line is that investing through the Conservo makes offshore investing a little less scary or cumbersome – and offers great benefits such as capital security, tax efficiency and sound succession planning.

For more information on the Conservo International Retirement Plan, contact Bryony Oostingh.

Bryony Oostingh


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Sovereign Trust (Gibraltar) Limited
Tel: +350 200 76173