There’s a lot to think about when planning to leave South Africa to relocate abroad permanently. There are financial and tax implications to consider when emigrating from South Africa. Upon emigration, the status of an individual will change from resident to non-resident for tax purposes. Once an individual no longer meets the requirements of tax residency in South Africa, they become a non-resident for tax purposes. This status change is also known as tax emigration and once it’s official, a capital gains liability is triggered. Capital gains tax on emigration from South Africa is also referred to as an “exit tax”.
Capital gains tax
What is capital gains tax in South Africa?
Capital gains tax (CGT) is the tax that the South African Revenue Service (SARS) claims when an individual disposes of certain assets.
When an individual exits the South African tax system, SARS treats them as if they have disposed of their worldwide assets. Emigrants are deemed to have sold their assets to their foreign self (hypothetically speaking) the day before they stopped being a South African tax resident. At this point in time, they became liable for the payment of capital gains tax on their assets. Immovable property in South Africa is excluded and will only be taxed when the property is sold.
Exit tax can affect a person’s tax return in the year that you leave South Africa, and the information below can be useful in preparing for the move.
Plan emigration from South Africa around capital gains tax
The timing of an individual’s tax emigration can have an impact on the tax liability and payments. By leaving early in the tax year, an individual can ensure that the capital gains tax liability does not elevate the total taxable income for the tax year to a higher tax bracket. It is important to obtain suitable tax advice to calculate your tax liability.
Three important questions concerning capital gains tax
What is the capital gains tax rate in South Africa?
- Capital gains tax is charged according to the annual SARS tax table and an individual’s capital gain is added to the taxable income for the year.
Top tip: It is possible to reduce the tax liability by emigrating from South Africa early in the tax year.
When is capital gains tax due and when must it be paid?
- Capital gains tax becomes due as soon as an individual is designated as a tax non-resident by SARS (completed the tax emigration process). Not at the end of the tax year when they file their last return and issue their declaration of emigration and request their status change.
Top tip: An individual should not wait until their next tax return to address capital gains tax. If they do, SARS is within their rights to charge a penalty on late payment of this exit tax.
Capital gains tax on property in South Africa
- South African property is not included when an individual’s capital gains tax liability on emigration is calculated. Capital gains tax are only payable when the property is sold.
When considering selling your property, the following should be considered
- A primary residence is excluded from capital gains tax, up to R2 million.
- Where a property in South Africa sells for more than R2 million and it is sold in the same tax year as the tax emigration, the combined capital gains tax (property sale plus exit tax) can elevate an individual’s taxable income for the year into a higher tax bracket.
- If the property in South Africa has not been the primary residence from the time of purchase to the time of sale, the R2 million exclusion will be apportioned to the time that the property was owned as a primary residence.
Important to note:
- If an individual lists their primary residence for sale before they leave, it can still be considered a primary residence for another two years as long as it stays on the market.
- This will allow an individual to utilise the R2 million exemption threshold and shift any capital gains tax above the threshold into another tax year.
Top tip: To use the R2 million exemption threshold, individuals must be made aware of the fact that they cannot rent out their property before they leave. Once the property is being rented out, it will not be regarded as the primary residence.
FinGlobal: tax emigration specialists for South Africans
FinGlobal is ready to help you meet all the SARS requirements for tax emigration and plan a tax-efficient way of making your exit from the South African tax system.
To get started with your free, no-obligation SARS assessment, leave us your contact details and we’ll be in touch.