If you are thinking of leaving South Africa (SA) permanently, you may wish to know what to do with your retirement annuity, says Daniel Baines, author of How to Get a SARS Refund and tax consultant at Mazars.
You have two options in this regard, you can withdraw the entire amount and take it with you or you can leave your fund as is, without contributing more, he said.
These two scenarios have different tax implications.
Scenario 1 – Withdrawing your Retirement Annuity
There are not many circumstances in which you are allowed to withdraw your retirement annuity funds prior to reaching retirement age; one of these occasions is upon emigration, Baines said.
The tax effect of withdrawing your retirement annuity when you are emigrating is illustrated by the following example:
- Amount in Retirement Annuity: R2 000 000
- Amount of tax payable upon withdrawal: R567 000
- Amount available to take with upon emigration: R1 433 000
If you withdraw your RA you will pay quite a large chunk of tax, the tax expert said.
“You must have formally emigrated with the South African Reserve Bank to be able to withdraw from your retirement annuity; if you do not do this you will not be able to withdraw your fund. Also note if you have previously withdrawn from any fund that the above calculation will differ.”
Scenario 2 – Leaving your retirement annuity
Your other option is to simply leave your retirement annuity as is and make no further contributions, said Baines. “Your fund should grow in value and when you reach the age of 55 you will be able to leave the fund and receive an annuity (monthly payment) from SA. This is only an
option if you do not formally emigrate; formally emigrating will result in a forced withdrawal from your RA.”
The place of taxation of this annuity will depend on the country that you have become tax resident in. For example, if you have become a tax resident of the United Kingdom (UK), the annuity will only be taxable in the UK i.e. you will be paid the annuity from SA, but it will be taxable in the UK, Baines said.
This is in terms of the Double Taxation Agreement (DTA) between SA and the UK. It would then form part of your taxable income in the UK and be taxed according to the UK tax rates, he continued.
“If you become a tax resident of Australia the situation is different. Under certain circumstances this annuity may be subject to taxation in SA in terms of the DTA between SA and Australia.
“This would mean that if the amount of the annuity that you receive exceeds the tax threshold (currently R78 150 for persons under 65) it may be subject to taxation in SA. The annuity could, however, also be subject to taxation in Australia. Australia may, however, grant you a tax credit for the tax, thus potentially avoiding any double tax.
“If you are considering leaving SA permanently, you should carefully consider the tax implications of withdrawing your retirement annuity as opposed to leaving it in the fund and letting it grow in SA.”