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Financial Planning

Greener pastures could erode your financial position


As the signs point to a dramatic economic impact on the back of Covid-19 hitting our shores earlier this year, more and more professionals are looking to emigrate. Before you look to move to greener pastures, make sure you are fully aware of the financial impact of emigration.

Global emigration firm, Henley & Partners says there was a massive jump of 48% in enquiries from South Africans in the second quarter of this year, compared to the first quarter.

The firm, says the relentless volatility in terms of both wealth and lifestyle has resulted in a significant shift in how alternative residence and citizenship are perceived by high-net-worth investors around the world. The disturbing stats are backed up by First National Bank’s annual Estate Agents Survey, which shows that 17% of property sales in the second quarter of this year were due to owners’ choosing to emigrate.

Tax implications of emigrating

Wynand du Preez, Regional Manager at PPS Specialist Support Services, which caters exclusively to graduate professionals, advises that you consult a financial adviser or a tax practitioner who can explain the tax and other long-term implications of liquidating investments such as discretionary investments, your tax-free savings account, pension and retirement annuities.

If you do decide to emigrate, you can access and transfer:

  1. Proceeds from your South African retirement annuities.
  2. Passive income from rental, dividends, director’s fees, or a salary.
  3. Future inheritance funds without being subject to South African resident exchange control.
  4. Proceeds from a third-party life policy.

Full relocation costs 

Relocating to another country is not a light undertaking. “One of the most common mistakes people make is the failure to consider the full costs of such a move,” du Preez notes. According to internet portal Moovguide, it would cost a family of four as much as R300 000 to relocate from South Africa to another country such as Australia, Canada, New Zealand, or the UK. 

“Besides the physical relocation costs, you have to look at other potential costs such as selling your home, paying capital gains tax on your discretionary investments, buying out your cell phone and gym contracts, and potentially the purchase of new furniture on the other side, to name only a couple of examples” Du Preez says.

He points out that the Rand is currently significantly undervalued on what we call purchase power parity, which means you will not be able to buy as much, for example, in US dollars in another country as you could in South Africa with your Rands. “Often migrants from South Africa find they have to significantly downgrade their lifestyle when they relocate abroad. It is also important that you revisit your retirement planning to consider your new country of residence.,” he cautions.

“Thus, it is recommended to consult with a tax practitioner to understand the tax liability a South African tax residence would face, when earning an income abroad. This will help you make an informed decision of whether you should financially emigrate and give up your South African tax residency,” say Du Preez.

Emigrate your estate planning 

When you emigrate, it is not just your current finances you have to consider, but also your estate planning.

Du Preez says you should note the following:

  • In some countries the inheritance laws differ from those in South Africa and in such cases, you may have to draw up a new will aligned to the laws of the country you have relocated to.
  • If you have parents or children who have chosen to remain in South Africa and you want them to inherit some or all of your assets in South Africa, you may need to have two wills drawn up – one which is legally sound in your country of residence and one that is legally valid in South Africa. In such a case, if you did not have a valid South African will, that would mean that your South African assets would be distributed as per the Intestate Succession Act. This means the beneficiaries may include a spouse, biological children, adopted children, parents or other blood relatives as determined by the applicable clauses of the Intestate Succession Act.

“Most importantly, make sure you speak to a professional that can assist you in understanding the new country’s inheritance laws. In some countries the inheritance laws differ from what we are used to in South Africa and could force you to for instance, leave a portion of your estate to your oldest child or to your spouse. These forced heirships mean that you are not completely free to decide how your estate is distributed,” Du Preez concludes.

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