Most South Africans started paying into their retirement annuities long before they even considered emigrating, with the plan to have enough savings squirreled away to see them through as they lived out the remainder of their golden years in sunny South Africa. However, circumstances change and unexpected opportunities arise. Emigration can complicate your financial matters if you’re caught unawares, so it’s important to know what to expect when things change to ensure you’re making the best possible decisions for your future.
So what happens to your South African retirement annuity when you emigrate?
If you thought you’d be forced to leave your retirement savings behind when you emigrate, the good news is that this is not the case. You become eligible to cash in your South African retirement annuity once you have left the country permanently, completed the process of tax emigration to become a non-resident for tax purposes, and you have maintained this non-resident status for a minimum of three years.
What are the tax implications of emigrating from South Africa?
Should you complete the process of tax emigration once you become eligible, you might become liable for capital gains tax once your tax residency status changes to non-resident. This is because tax emigration is a trigger event for capital gains tax.
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- The low down on capital gains tax when tax emigrating
Emigration: early withdrawal from South African retirement annuities
Generally, the rules around retirement annuities in South Africa state that you are only eligible to withdraw from your retirement annuity once you have reached the official retirement age of 55. However, one of the exceptions to this rule is that you can cash in the full amount of your retirement fund once you have been a non-resident for tax purposes for a minimum of three years, provided you have received confirmation of your non-resident status from SARS.
What does this mean? Completing tax emigration is the only way to withdraw your retirement savings early but it comes with a few additional implications, such as capital gains tax in certain circumstances.
What are the implications of withdrawing your retirement annuity early?
Once you have met the requirements of being a non-resident for three years (which can be backdated, if you’ve already relocated from South Africa), you become eligible to surrender your retirement annuity. You must follow the specific fund procedures that apply to notify the fund administrator of your intention to withdraw. The fund administrator then submits a tax directive request on your behalf, which enables SARS to instruct the fund administrator or insurer on how to deduct tax from the lump sum cash payout.
Is there a penalty for cashing in a retirement annuity policy before the date of maturation? It depends on your policy provider and the type of product you purchased. Penalties are usually between 0% and 30% but the rules of your fund will provide clarity on the exact penalty amount before you decide to cash in your policy early.
How will early withdrawal from your retirement annuity due to emigration be taxed? You will receive the proceeds from your retirement annuity only after deductions for taxes by SARS. There is a specific tax table for early withdrawals from retirement funds, and the tax amount varies based on the lump sum value, with higher amounts falling into higher tax brackets.
Retirement annuity lump sum amount | Tax rate – 2024 tax year (1 March 2023 – 29 February 2024)
First R27 500: 0% of taxable income
R27 501 – R726 000: 18% of taxable income above R27 500
R726 001 – R1 089 000: R125 730 + 27% of taxable income above R726 000
R1 089 001 and above: R223 740 + 36% of taxable income above R1 089 000
Don’t forget that the rule of aggregation applies, according to which all previous retirement fund lump sums previously withdrawn are added up, which can end up pushing you into a higher tax bracket.
What happens during the three year lock-in period for retirement annuities after you’ve become a non-resident for tax purposes? Whether or not you continue to contribute to your retirement annuity once you have permanently relocated depends on your specific circumstances. Regardless of the choice you make, your annuity will continue to grow based on the investment performance of the underlying assets until you are ready to cash in your South African retirement annuity.
FinGlobal: retirement annuity encashment specialists
Ready to cash in your South African retirement annuity? FinGlobal can assist you with every aspect of your tax emigration, tax clearance and handle the surrender of your retirement annuities, from start to finish.
To find out more about our convenient retirement annuity surrender services, leave your contact details and we’ll be in touch!