What is a tax free investment?

The highlights: You can put up to R36,000 a year (the equivalent of R3,000 a month), and R500,000 over your lifetime, into tax free investments.

  • You aren't taxed on the growth of this money.
  • You aren’t taxed on any interest or dividends that are reinvested.
  • You aren’t taxed or penalised when you withdraw money.
  • You can put in or withdraw money whenever you like (although the longer you leave it, the more you benefit).

  To encourage savings, the South African government has created legislation that allows for tax-exempt investment and savings products. All returns on these investments will be tax free. Returns can include growth (or capital gains), dividends, or interest. These investments can’t charge any performance fees, and should be structured in a way that avoids speculation or other excessive risks.

Tax free investments offer the following features:

  • You may open more than one tax free savings account and investment, limited to R36,000 per tax year collectively across them all, with a lifetime limit of R500,000.
  • The limits are per individual and not per investment.
  • Any amount you put into your investment(s) that takes you above the annual or lifetime limit will be penalised at 40% in that tax year.
  • The accumulated value of an investment (what you put in plus growth) can exceed R500,000.
  • There’s no tax on interest earned.
  • There’s no tax on dividends (payments by a company to anyone who owns shares in that company). Dividend tax is a tax normally charged at 15%.
  • There’s no tax on capital gains, i.e. profit you make from the investment.

  Only individuals are eligible for tax free investments and savings accounts (not trusts or companies).

You can withdraw money from tax free investments any time, but once you do, you can’t replace that portion by re-investing.

Tax free investments are excellent for long-term savings of five or more years, and the longer you leave your money in a tax free investment, the more it grows. While you can withdraw from a tax free investment any time, you can’t replace what you take out and still get the “tax free-ness”.

The South African government does not intend for tax free investments and savings to replace certain other tax-deductible retirement savings, and you’re still encouraged to consider making use of those products’ tax benefits.

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