Warning about new R46,000 tax-free limit in South Africa
Finance Minister Enoch Godongwana may have increased the yearly tax-free investment allowance, but South Africans must still keep up to date on their additions and withdrawals.
In the 2026 Budget, Godongwana announced that the annual contribution limit for tax-free investments has increased from R36,000 to R46,000.
South Africans can now thus invest up to R46,000 per year in approved tax‑free investment products without paying tax on the returns, with effect from 1 March 2026.
Thopi Mhloli, Head of Savings & Investments at Standard Bank, said that tax-free investments are among the best ways to build long‑term wealth.
Tax-free investments can be structured as endowments, savings accounts or unit trusts.
“It’s wise to start early, you cannot accumulate your annual contribution allowance- you must use it or lose it,” said Thopi Mhloli, Head of Savings & Investments at Standard Bank.
Standard Bank has also urged clients to review their total tax-free investment contributions across all their providers.
For instance, a customer with two tax-free accounts will have an annual limit of R46,000 for both accounts.
“Some TFIs may not be labelled clearly. Always double‑check if you’re unsure when taking out your investment,” added James Coutinho, Senior Manager, Group Corporate and Client Tax.
Coutinho added that contributions made to TFIs, including fixed‑interest accounts, unit trusts or ETF‑based investment accounts, count towards your annual and lifetime limits.
All contributions will be reported to SARS by providers, and you will be liable for 40% penalties if you exceed your monthly and annual contribution limits.
Thus, keeping accurate records is crucial in avoiding penalties. All contributions ever made to TFIs will also count towards the lifetime contribution total of R500,000.
Withdrawing funds from a TFI also does not create room for additional contributions.
For instance, if an investor withdraws R10,000 after having already reached the annual R46,000 limit, they cannot recontribute R10,000 in the same tax year without a penalty.
“So, even if your combined TFI investment balance is below R500,000 because you’ve withdrawn some funds, you still need to track how much you’ve contributed and withdrawn over the years,” added Coutinho.
Tax-free benefits
Standard Bank added that tax-free investments offer a rare advantage, including investment growth completely shielded from tax and withdrawals themselves also being tax-free.
Tax-free withdrawals are not included in an investor’s taxable income. Without the tax‑free status, investors could be hit:
- Up to 45% tax on interest income
- 20% dividends tax on South African dividends; and/or
- Up to 18% capital gains tax on capital gains
Standard Bank said that taxes on interest, dividends, and capital gains can significantly reduce returns over time.
Tax-free savings products avoid these taxes entirely, making them one of South Africa’s most efficient long-term investment tools.
They also suit a wide range of goals, with younger savers benefiting from compounding interest, parents using TFIs for education planning, and long-term investors using them for retirement.
These investments are also offered in a range of product types, which allows investors to choose one that aligns with their risk appetite and time horizon.
Investors who don’t want to take on risk can choose conservative TFIs and fixed-income products to achieve predictable returns.
On the other hand, South Africans who can stomach more risk can choose diversified tax-free unit trusts and low-cost ETF-based portfolios aimed at long-term capital growth.
“These products allow savers to match their tax‑free strategy to their personal goals, timeframe, and appetite for risk, while still benefiting from full tax exemption on all investment returns,” said Coutinho.
Loading ...