Facing the New UK NDR Rules? Then It Is Time to Formally Exit From South Africa
Hugo van Zyl CA(SA), a South African based tax advisor specialising in cross border wealth planning and administration, which inter alia includes Exchange Control Exits (financial emigration) recently highlighted the fact that the new UK Non-Domiciled tax Resident (NDR tax) rules on deemed changes from tax resident to fully domiciled status has lead to a flood of new expats, being in the UK for 5+ years, wishing to legally extract their SA assets into more stable hard currency jurisdictions, be it to either the UK or even Switzerland.
Removing or extracting SA wealth is indeed possible without giving up your South African passport or right to return to SA. For certain expats it could be the best possible insurance policy against SA death taxes, for their and the next generation and for some others a hedge against another Zimbabwe-like crisis in Africa.
One of the advantages of breaking the NDR status in year 8 of 10, is that the now UK domiciled ex South African will probably not be face SA Estate Duty (on their death) or the dreaded 10% Excon levy on assets inherited from SA resident family, provided his or her asset base in SA is no longer indicative of their centre of vital interest.
One way to tilt the centre out of SA, but not necessarily into the UK, is to legally extract your wealth from ZA Rand into a truly global currency or jurisdiction. Reading the UK / RSA treaty on the avoidance of double death duties one should not be surprised about the drastic reduction in the deemed domicile rule (from18 out of 20) to 8 out of 10 years as this has always been the window period for wealth transfer before facing UK death or capital transfer taxes. The new NDR hype has been around for some time, we just did not to always apply or know of the 1978 estate or death duty treaty which favoured the UK.
UK residents, domiciled or about to be treated as domiciled, may face a +30% combined death and Excon duties on the value of their wealthy SA parents’ estate, for failing to complete their Excon Exit timeously.
During the week 8 to 12 September 2008 Breytenbachs will facilitate clients wishing to meet Hugo van Zyl, during his UK visit. During the rest of September he will be consulting mainly in California and Nevada, USA
The Current Excon Options Available
Current Exchange Control (Excon) allow South African emigrants to formally exit the SA Excon system, taking R4, 5m in cash and some chattels (between R1 to R1.5m per family) free of the Excon Exit Levy (EEL) out of SA.
The “remaining assets” or blocked assets can be left in SA alternatively, subject to a SARS tax clearance and SARB approval, could be cleared for transfer to a foreign currency after a deduction of a the 10% EEL as and when funds leave South Africa, where after there should not further estate duty and only limited CGT exposure in SA.
All subsequent income (pension, annuity, interest and dividends) are, however, freely transmittable (remittable funds) without suffering another Excon Levy. The UK / RSA double tax treaty (DTA) will favour the UK therefore post emigration funds can leave SA without paying any further income or capital taxes or levies to the SA government or SA Revenue Services (SARS).
Several South Africans living in the UK and EU, for various different reasons is now facing world wide taxation of both income and wealth (typically on death or an earlier capital transfer date) in their new home country. Most longer term expats living in the UK are paying UK taxes on their SA assets and income as they have progressed from the NDR remittance basis of taxation to the new arising taxation of global income i.e. their UK tax exposure is no longer ring fenced to UK income and remittances but taxed on a system very similar to SA’s taxation of world wide income accrual and deemed assets transfers (CGT events).
The various DTA’s often provide some tax, CGT and or death duty relief however the current credit crunch has forced SA expats in the UK (Saffas) to look towards their SA rand based wealth to reduce their UK debt. For others it is a case of closing down the big black “financial commitment” hole in SA, for ever diluting their UK pound income. It is surprising how many Saffas has failed to reduce their SA contributions to life policies, retirement annuities and interest instalments on SA assets no longer required. Add to this the number of SA trusts which ahs now become a UL tax albatross as it is indeed an offshore trust and any income arising would could be taxed in the UK and there is nor formal Excon guarantee that the UK taxes may be funded from the SA “trapped” or blacked funds creating the new UK tax charge.
This is however not the most important reason for considering a formal emigration from South Africa. The estate duty benefit and the legal extraction of retirement income to the UK have suddenly dawned upon many Saffas as they in any event, based on the new arising basis of taxation, will have to pay UK taxes on the SA income.
Transferring or distributing SA capital upon death, may result in a +20% SA death duty whereas a legal emigration of funds whilst alive, at a cost as 10%, may safe you substantial future death duties on greatly inflated SA and UK assets. Saffas deciding to formalise their Excon exit, despite leaving most of their assets in SA (i.e. immovable property) has a further advantage in that their future inheritance from their now elderly or terminally parents may leave SA Rand without a 10% EEL charge. Yes, living in the UK with wealthy SA parents can cost you +30% in taxes before you can legally enjoy the now SA owned inheritance in the UK.
All of the above, read together with the new post NDR tax rules, should encourage all Saffas to ask weather or not its high time and indeed extremely beneficial to permanently collapse the SA family trust, kept alive to protect you against ASA death duties no longer applicable.
Van Zyl will be in London for a week from Monday 8th of September, during which period he will be able to provide Breytenbach clients with a detailed analysis of their Excon options, Death Duty position and most importantly, the possible SA and UK tax benefits should they wish to commence or complete their Excon exit from South Africa (or formal emigration as some of us prefers to refer to the process).
Blocked Asset Regime following the formal emigration
Saffas deciding to formally exit SA (that is commencing a financial emigration) will be able to retain their SA passport yet they have to place all their remaining SA assets under control of the SA Reserve Bank (SARB) where after the said SA assets are commonly referred to as blocked assets or blocked Rands. Any transfer of said blocked funds into a foreign currency, will attract an Excon Exit Levy or EEL at 10% of amount transferred i.e. should you wish to land GBP 100 000 in the UK, you need to request a transfer of £ 111 112.
Consultation Available In the UK
During the week 8 to 12 September 2008 Breytenbachs will facilitate clients wishing to meet Hugo van Zyl, during his UK visit. Interested parties can contact Jacinda Olivier on +44 (0) 207 499 3111 or at email@example.com to arrange a meeting. For those not able to meet Van Zyl during this week, it will be possible to secure the ongoing services of Van Zyl by contacting him at firstname.lastname@example.org or +27 (0) 83 4078652