Changes to your financial plan

2015-03-09 10:00

Much has been made about the new tax hikes and increased fuel levy, but there are other changes in the budget that will affect your fiscal strategy, writes Maya Fisher-French


Tax changes for income-protection policies came into effect at the beginning of this month, which means your disability income insurance policy will no longer be tax deductible.

If you have an income-protection policy, either through your employer or as an individual, it will affect the amount of tax you pay.

James Coutinho, a senior tax manager at Liberty, says that, previously, premiums on income protection policies were tax-deductible, but you were taxed on your monthly income payout.

“The new changes mean you will be taxed on your premiums going forward, but your monthly income payouts will be tax-free. This in effect means you could expect to receive a larger payout,” he says.

Coutinho notes that, depending on when you make a claim, your payout benefit may be adjusted to reflect your post-tax income.

“The premiums on income-protection policies are not likely to increase to take into account this tax change,” he says.

What the change does mean is that there is now a perverse incentive to claim on an income-protection policy because you will receive a higher payout, which also reduces the incentive to return to work.

Coutinho points out that while income-protection policy premiums will not automatically be affected, he recommends that you seek financial advice to determine whether you are under- or overinsured, taking into consideration these changes.


Tax-free savings accounts came into effect this week. Any amounts invested in these accounts will not attract any form of tax, including interest on income tax, capital gains tax and dividend tax, making them a compelling part of your savings plan (see page 12).

The tax-free contributions are limited to R30?000 a year and a lifetime benefit of R500?000, although, over time, the balances in these accounts are allowed to exceed the R500?000 limit due to accumulated earnings and capital gains. Liberty will be launching a range of tax-free savings accounts so clients can take advantage of this new tax benefit.


Changes will be made around estate duty and retirement funds to stop a popular scheme people have been using to avoid paying estate duty. The scheme used an opportunity created inadvertently in an amendment to the Estate Duty Act in 2008, which meant lump sums from retirement funds were not subject to estate duty.

“In terms of this loophole, clients could invest large amounts into retirement-annuity funds as part of their estate planning. The proceeds of the retirement annuity after the death of the member would pass to the dependants without incurring estate duty,” says Michelle Dubois, legal marketing specialist at Liberty.

In the budget review, Finance Minister Nhlanhla Nene announced that any such contributions that were not tax deductible in the year they were made, and therefore available as part of the tax-free lump sum upon the death of the member, would in future be included in the estate of the deceased member for estate duty purposes and could attract duties of 20%.


A retirement fund member may now defer the drawing of his or her retirement income until after his or her retirement date, although this will be subject to a maximum age, which is still to be announced.

Previously, a member was required to convert a retirement fund into an annuity that paid an income even if the retiree did not need these funds immediately.

Now a retiree can leave the funds to grow.


Any foreigner who invested in a retirement annuity during a work contract in South Africa and then returned home cannot currently access these funds.

This is not in line with legislation that allows South Africans who have left the country to access their retirement funds as a lump sum prior to retirement. This mismatch in treatment will be reviewed to allow foreigners to access their retirement funds.


The way deceased estates are taxed will be reviewed to prevent an anomaly in taxation.

Deceased estates are subject to income tax on income earned by the deceased estate or heir, and capital gains tax on death.

For example, if a property in a late estate was earning a rental income, the income would have been taxed and then, when the property was sold, it would incur capital gains tax.

This amounts to double taxation and will be aligned.

It’s not all bad news

Taxes that stop you from eating into your retirement savings

Treasury introduced changes last year designed to encourage you to stay invested until retirement.

If you change jobs and withdraw a lump sum from your retirement fund, the first R25?000 is now tax-free.

But the tax you pay on subsequent withdrawals increased as follows:

.?You will pay 18% tax on withdrawals between R25?000 and R660?000. The tax on withdrawals between R660?000 and R990?000 has increased to R114?300 plus 27% of your taxable income above R660?000.

.?Your withdrawal of more than R990?000 will be taxed at R203?400 plus 36% of your taxable income above R990?000.

When you retire, on the other hand, the tax-free lump sum you can withdraw is now R500?000.

The tax you pay on the amounts you withdraw thereafter has also decreased:

.?Withdrawals between R500?000 and R700?000 will be taxed at 18% of your taxable income above R500?000.

.?Withdrawals between R700?000 and R1.05?million will be taxed at R36?000 plus 27% of your taxable income above R700?000.

.?Withdrawals of more than R1.05?million will cost you R130?500 plus 36% of your taxable income above R1.05?million. – Neesa Moodley

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