Financial Planning

Key estate planning factors to consider when moving abroad

By: Theunis Ehlers, Director, Citadel Fiduciary

In our modern, globalised world, many people are moving abroad, whether just temporarily or permanently emigrating, or they have children who have moved abroad.

However, there are quite serious financial considerations that must be taken into account when deciding to emigrate, if you are to avoid an extremely nasty surprise at a later stage.

Tax residency vs exchange control residency

First of all, there is the question of residency. It is crucial to note that residency for tax purposes and residency for exchange control purposes are two different matters.

People sometimes say, “I haven’t changed my tax residency because I haven’t spent more than 180 days offshore in the current year.”

But this is irrelevant – changing tax residency is based on a number of factors which give evidence to whether you are “ordinarily resident” in South Africa or not. Furthermore, the double tax agreement with the other country may also play a role in determining tax residency.

Emigration for exchange control or formal emigration, on the other hand, is effected by submitting an application to the Financial Surveillance Department of the SA Reserve Bank. For this you need proof that you have the right to live in the country where you intend to go and you must show your intent to no longer be permanently resident in SA.

The two may coincide, but not necessarily – which is where difficulties and confusion often arise.

For example, you may think that if you move offshore, but do not formally emigrate from South Africa, you will still be considered a tax resident here. But whether you formally emigrate or not, it means that you may have unintentionally given up your tax residency in South Africa by moving abroad, triggering certain tax implications. This would include a Capital Gains Tax (CGT) event on all your worldwide assets, excluding only certain assets such as a South African fixed property.

If you don’t realise that you have broken your tax residency and deal with the implications of that in the relevant tax year, you may face some quite serious consequences in terms of penalties and interest a few years down the line.

Estate planning and inheritances

Furthermore, we quite often find that when children move offshore, they never emigrate formally from a Financial Surveillance perspective.

This means that should you leave your estate to your children, the executor of your estate would not be able to transfer their inheritance directly offshore.

Instead, your children would need to return to the country and use other mechanisms to facilitate the transfer of assets.

It is therefore strongly advisable that you and your children seek professional advice to understand your and their tax residency and exchange residency statuses better, and the implications of this for tax and estate planning purposes.

Trusts

Trusts are an absolutely key issue to be aware of as part of your financial planning when moving abroad.

Keep in mind that the jurisdiction that you are moving to may treat trusts and the benefits received from them in a completely different manner from South African law. In the US and Australia, for instance, there may be quite large penalties, as well as interest and tax implications for the beneficiaries of offshore (South African) trusts.

Likewise, when it comes to your will, it is important to bear in mind that while your will may be valid in South Africa, it may not be practical or efficient to administer and execute in another jurisdiction.

In common law countries, such as the United Kingdom, where there are similarities to certain South African legal concepts, South African wills and assets in that jurisdiction, belonging to South Africans, tend to be easier to administer and probate, especially by companies and specialists with the relevant experience and knowledge.

However, civil law countries are very different, as they may have rules involving forced succession, or other restrictions on inheritances and what may be addressed and dealt with in your will.

It is therefore absolutely vital to obtain professional, jurisdiction-specific advice on all aspects of your financial and estate planning should you choose to emigrate.

Finally, we have come across cases of people who have taken up golden visa opportunities for Europe, and have then been met with some unexpected consequences. For instance, there are instances of individuals who moved to Portugal only to realise that one of the requirements is to become proficient in the local language, namely Portuguese, at a first-year university level within seven years.

Before making any decisions, it is important that you obtain professional advice and research your options thoroughly, even if this means speaking to a range of experts with skills ranging from international travel and emigration law to wills and fiduciary services.







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