For many South Africans, retiring abroad has become an attractive lifestyle choice, with many destinations to choose from. Once the kids are out of the house and you’re no longer tied to a job, you have the freedom to leave South Africa and start the best chapter of your life anywhere you choose. Imagine the possibilities! However, as exciting as it may be to daydream about your ideal retirement, it’s important to factor in the financial realities of such a move. With that in mind, let’s take a look at the impact of emigration and ceasing your tax residency on your finances and retirement annuity savings.
Can you withdraw your retirement annuity early to fund your emigration?
According to the retirement annuity rules in South Africa, under ordinary circumstances you are not permitted to withdraw your retirement funds before the age of 55 as long as you are a South African tax resident. Although there are legislative changes in the works that might amend this in future, these new tax laws have not yet come into effect in South Africa. So your only options are:
- Wait until the official retirement age of 55 to become eligible to cash in your retirement annuity.
- Leave the country and then complete tax emigration from South Africa, after which you become eligible to cash in your retirement annuity once three years have passed.
Let’s unpack the implications of both options:
1. Cash in your retirement annuity before you emigrate from South Africa:
If you have plans to move abroad, and you have already celebrated your 55th birthday, you might think that cashing in your retirement annuity before you go is your best option. This is not necessarily the case. When you cash in your retirement annuity as a South African tax resident over the age of 55, the law only allows you to take one-third of your savings as a cash payout, after you have paid the retirement lump sum tax to SARS. The remaining two-thirds? You’re obliged to purchase either a living or a life annuity, which will pay out a pension income to fund your retirement years.
While that might sound do-able, it’s important to bear in mind that your pension income will only be payable in South Africa, which isn’t ideal if you’re no longer in South Africa. It’s also important to note that pension income, because it’s payable in South Africa, counts as income sourced in South Africa. This means that it’s taxable first in South Africa, for as long as you receive that income. Such a move can significantly complicate your tax affairs, as you will need to manage the taxation of your pension income in two tax jurisdictions.
2. Cash in your retirement annuity after you emigrate from South Africa:
Once you have left South Africa permanently with no intention to return, you become eligible to cash in the full value of your retirement savings, after having completed tax emigration through the South African Revenue Service (SARS) by ceasing your tax residency in South Africa. Simply by changing your status from resident to non-resident for tax purposes, and maintaining this non-resident status for three years, you can withdraw your full retirement savings (less tax and administrative fees) and transfer the full amount overseas. Once you have your hands on your money, you’re free to do with it as you please.
Read more:
- What can you do with your retirement policies post emigration?
- 6 things you probably didn’t know about transferring your South African RA funds to another country.
What does it mean to cease tax residency in South Africa?
Ceasing tax residency in South Africa means you no longer meet the SARS requirements to be considered a tax resident. It is not enough, however, to simply stop meeting the requirements for tax residency, you must go through the official process to cease your tax residency, which is known as tax emigration from South Africa.
Read more:
- Understanding tax residency in South Africa
- A step-by-step guide to ceasing tax residency and becoming a non-resident for tax purposes in South Africa.
Is there a Capital Gains Tax on emigration from South Africa?
In certain circumstances, having your status changed from resident to non-resident for tax purposes by tax emigration from South Africa can have Capital Gains Tax implications. When ceasing your South African tax residency, you’ll be taxed on the capital gains of all your global assets. Essentially, the tax authority will treat you as if you sold all your worldwide assets to your non-resident self at their current market value the day before your residency status changed. This triggers a capital gain, which is subject to taxation.
Read more:
- What you need to know about how exit tax is calculated in South Africa.
- The low down on capital gains tax when tax emigrating.
FinGlobal: tax emigration and retirement annuity encashment specialists
If you’re planning your overseas retirement, FinGlobal can help to make your transition as smooth and stress-free as possible. We’ve already helped thousands of South Africans in hundreds of countries with various aspects of their cross-border financial portfolios, and we’re ready to offer you the same convenient, reliable services. From tax emigration to retirement annuity withdrawal, we offer a full range of financial services designed to make it easier for you to start your next chapter abroad with confidence.
To find out more about how FinGlobal can assist with your money moves before and after your overseas retirement, leave your contact details below and we’ll be in touch to answer all of your questions.