Offshore investment for South Africans

Why is investing offshore important?

Investing abroad is a simple and rational diversification strategy which takes into account the fact that South Africa is only 1% of global market capitalization. There are two things you should also keep in mind:

1. Due to the size of offshore investment markets, pricing for investment management, investment administration and financial planning advice is lower in bigger markets.
2. The most sophisticated global smart beta investment strategies that we use for our clients aren’t accessible in South Africa.

What can I invest in once I have moved my funds abroad?

Subject to certain limitations on funds moved over and above the discretionary allowances, you are free to invest the funds into a myriad of options. However, access can be a problem.

Large financial groups in countries like the UK and mainland Europe, won’t allow a South African to simply open an investment account. So you need to know where to go, and this is where we can help.

The choice of investment vehicle needs to be carefully selected and tailored to your circumstances. For example, the choice of wrapper for an investor staying in South Africa and investing abroad is very different from the wrapper we would use if the client is planning to move abroad.

If I am planning to move abroad, what should I look out for?

It’s important to consider tax efficiency in your new country of residence. Financial planning is about anticipating the future, therefore you need to receive the right advice from an adviser that has the necessary cross-border qualifications and experience.

For example, you may wish to move your retirement funds from South Africa to an equivalent pension in your destination country.

Assume you have moved to the UK and you have the equivalent of £40,000 of pension funds in SA that is being transferred via financial emigration. Whilst setting up your business or gaining employment, let us assume you earn £20,000 in the UK in the first year, and in the second year your income rises to £90,000. The annual allowance into UK pensions is the greater of your UK earnings or £3,600, with a maximum of £40,000 per year.

If (perhaps being unaware of the UK pension scheme rules) you brought the entire £40,000 into the pension in your first year, you would get tax relief of £4,000. If you transferred the funds into the pension on the second year, you would get tax relief of £16,000. That’s a £12,000 saving on tax relief alone.

You could, however, invest the funds in the interim prior to the actual transfer to the new pension, so as not to be left out of the market during this period.

This would free up more funds for you to invest in other tax-efficient vehicles, each with their own tax benefits, depending on your particular needs and goals. In the UK these may include:

• Individual savings accounts
• Self-invested pensions schemes
• Onshore bonds
• Offshore bonds
• Enterprise investment schemes
• Venture capital trusts
• QNUPS
• Excluded property trusts

Each of the above have specific and different tax treatment relating to contributions, growth within the wrapper and the tax treatment as the money comes out.

Advisers have a tendency to focus on tax. Is it all about tax?

It is important to understand your position with respect to taxation prior to making any investment decisions as it may materially affect your objectives. We see three layers to the investment - the financial planning or tax layer, the investment platform layer and the investment strategy layer. They are all important and you can’t focus on one to the exclusion of the other.

How does Sable International's wealth service help clients on these issues?

Our wealth division is a dual licensed wealth manager. We offer cross-border financial planning for our clients across South Africa and the UK. We are witnessing a greater and greater demand from South African clients for a global perspective to their financial planning. We were founded in London and evolved looking after South Africans in London, so we have the skills, experience and perspective needed to cater to our clients’ cross-border needs.

Give me a call on (021) 657 1578 or send me an email and we’ll set up a meeting to discuss your offshore options.

Disclaimer: The information contained in this publication is intended as a guide only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial planner/adviser to take into account your particular investment objectives, financial situation and individual needs.