This is a good time of the year to review your portfolio and to maximise your benefits.
With the calendar year-end fast approaching, we need to consider that the financial year end is also around the corner. Many individuals qualify for a bonus this time of year, and it is an excellent time to review your portfolio and ensure you have optimised your tax benefits before the end of February 2022. Allocating your bonus towards this may just be something to consider.
Firstly, I would advise revising your contributions towards your retirement portfolio. This can be a combination of a retirement annuity in your personal capacity, as well as a pension or provident fund with your employer.
You are allowed to save up to the lesser of R350 000 per year or 27.5% of your annual taxable income or remuneration in a combination of these products and deduct it from your total taxable income. Should your contributions exceed the annual deductible amount, these contributions will be seen as excess contributions and will be rolled over on an annual basis.
At retirement, you will qualify for additional tax benefits. Normally at retirement stage (anything from the age of 55) you will qualify for R500 000 which is taxed at 0% provided no previous retirement fund withdrawals or severance benefits apply. Excess contributions can be added to this “tax-free lumpsum” at that stage. Therefore, your “tax-free component” can in reality be higher than R500 000.
Apart from your retirement investment vehicles, you can also benefit from a tax-free investment. You are allowed to invest a maximum of R36 000 per year, and R500 000 in your lifetime. Should your portfolio still allow additional top-up investments to reach your annual R36 000, I would advise utilising this. Not only for yourself but for your family members as well, as this product offers a range of benefits in the long run.
A tax-free investment can also be seen as an investment vehicle to supplement your retirement income one day. You will be able to draw an income from this product without having any additional tax implication. This makes a tax-free investment a great additional planning tool.
This is a challenge that needs to be considered with any liquid portfolio should it be a voluntary investment or a direct share portfolio. A tax-free investment allows you to benefit from 100% equity exposure over a long-term period and not have any capital gains tax implications over time.
If you are not making the most of the tax-efficient investment opportunities on offer already, the end of the year provides a good reminder to get our financial affairs in order. I would advise that you speak to your financial adviser, to ensure you are optimising your tax benefits. This is also a good time to review your portfolio holistically, ensuring your investment strategy is still aligning with your financial goals.
Elke Brink is a wealth advisor at PSG Wealth.