Increase in TFI annual limit applauded - growth expected in the industry in 2017

Increase in TFI annual limit applauded - growth expected in the industry in 2017

By Nedgroup Investments, 24 Feb 2017

The increase in the annual tax-free investment limits from R30 000 – R33 000 is a hugely positive development to encourage proactive saving amongst South Africans, says Nedgroup Investments.

Seugnet de Villiers, Investment Analyst at Nedgroup Investments, says the 10% increase in the maximum allocation allowed to be invested in tax-free investments will provide further incentive for South Africans to take advantage of the savings opportunities available via tax-free investments.

“While the growth on tax-free contributions over the past two years, since they were introduced has been very encouraging, we found that there are still many investors who believe that the contribution limits of R30 000 per year and R500 000 per lifetime do not make it worth their while. These new limits will almost certainly have an immediate impact on the uptake of these investments and we applaud the move by government,” she says.

De Villiers says tax-free investments have certainly taken off as the ‘no-brainer’ investment of choice in South Africa in the past two years, with over 260 000 new tax-free investments being opened in the first tax year alone according to the Intellidex Survey. “At Nedgroup Investments, the total contributions to tax-free investments had already more than doubled by January in the second tax year that they have been around for – not including the flows for February which is always one of the most popular months for tax-free investing. We look forward to seeing the impact of the increased limits as the new tax year kicks off on 1 March.”

De Villiers says all South Africans stand to gain by considering tax-free investments. She highlights the following benefits that make the investment a ‘no brainer’.

“In short, zero percent tax. The growth on your tax-free investment portfolio is boosted throughout your investment time frame by being exposed to zero percent tax on dividends earned (instead of 20%), zero percent tax on interest/income earned (instead of your marginal tax rate on interest earned above the annual interest exemption, which has remained unchanged for the new tax-year) and zero percent tax on capital gains realised at withdrawal (instead of up to 18% on gains above R40 000). It’s an excellent incentive to encourage a much needed savings culture in South Africa,” she says.

The table below shows, in rands, the ‘TFI is a no-brainer’ story. For example, if you stick to this monthly discipline for five years in a high equity balanced fund, your R165 000 contribution can be worth more than R200 000, or over a 10-year period your R330 000 contribution can almost double to R602 000. In addition, you are not subject to any capital gains tax (CGT) at withdrawal and you will be able to put the full expected value in your pocket, unlike withdrawing from a normal unit trust investment.

 Total contribution, expected growth and annual tax saving: R 2 750 monthly debit order

  

3 years

5 years

7 years

10 years

Total contribution

R 99 000

R 165 000

R 231 000

R 330 000

Low Equity Balanced

After tax growth

R 13 436

R 36 727

R 76 960

R 163 439

Annual tax saving (excl. CGT)

R 2 598

R 8 121

R 18 068

R 43 520

Expected Value

R 115 034

R 209 848

R 326 028

R 536 959

High Equity Balanced

After tax growth

N/A*

R 50 355

R 109 490

R 239 741

Annual tax saving (excl. CGT)

 

R 5 561

R 12 867

R 32 443

Expected Value

 

R 220 916

R 353 357

R 602 184

SA Equity

After tax growth

N/A*

 

R 143 385

R 319 471

Annual tax saving (excl. CGT)

 

 

R 9 166

R 24 005

Expected Value

 

 

R 383 551

R 673 476

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