No, I’m not quite talking about retirement yet. We still have four kids to shepherd through college, so the prospect of us retiring anytime soon is about as unlikely as completing a customer service call with Telkom without being hung up on at least once.
Unless I turn this blog into a book that sells a million copies. I’ll call it Fifty Shades of Expat Life and sprinkle in a liberal helping of Holy Crap’s.
But if we did have our retirement to plan, we would certainly consider spending at least part of it in South Africa. We already know it’s a great place to live. However, there are financial aspects to consider and tax laws to understand, so if you are in a position to plan your retirement, it’s a good idea to solicit some expert advice.
The following is a guest post sponsored by Whichoffshore, a financial consulting firm giving precisely such advice, in this case specifically targeted towards British pensioners.
The Implications of Retiring in South Africa
by Michael Brinksman
Retiring to sunnier climes is a decision made by thousands of British pensioners every year. The beautiful weather, sedate way of life and stunning vistas were powerful enough to attract over 9,000 Brits to South Africa in 2007 alone. However, a decision of this magnitude should not be taken lightly, as there are some significant social and economic implications involved when making such a move. The safety net of the British welfare system will not reach as far as Africa, so it is essential that people have their eyes opened to the financial reality of expatriate tax.
Many pensioners decide to spend their final years in South Africa for a better quality of living; however, they need to be absolutely certain that their pension income will deliver the quality of life they are expecting. It is essential that expats fully understand their tax liabilities before they leave for their retirement. Individuals earning less than 60,000 Rand per year are not required to file income tax returns, but foreigners who wish to live in South Africa must make a full and accurate declaration of their worldwide assets. A tax resident is defined as someone who has lived in South Africa for 550 days within the previous three years, or someone who has spent 92 days a year in the country for the previous three years. Foreign pensions may be liable to income tax in South Africa, but there is a way for pensioners to reduce their liabilities to a minimum – or even remove them completely.
Pensioners who are living in South Africa, or intend to do so, should seriously consider transferring their pension funds to a Qualifying Recognised Overseas Pension Scheme (QROPS). Although there are around twenty QROPS funds in South Africa, advice from Her Majesty’s Revenue and Customs suggests that expatriates consider a neutral territory for such a transfer. Popular QROPS pension schemes amongst British expatriates include those in the islands of Jersey and Guernsey. The benefits of such a transfer include significant tax savings, a wide choice of investment options and a more flexible arrangement than the QROPS schemes that are available in South Africa.
There are many countries that make pensioners liable for income tax and capital gains tax from the proceeds of a QROPS scheme. However South African legislation states clearly that there is absolutely no tax liability for funds that are repatriated from a QROPS into the country. This means that there are some significant advantages to be gained from choosing South Africa as a country for retiring in. Pensioners setting up a QROPS will be able to transfer funds from previous occupational schemes, superannuation schemes, personal pension schemes and a number of other pension facilities.
Only those people who intend to retire outside of the UK will be able to transfer their pension funds to a QROPS; however, expatriates are allowed to visit the UK for several weeks every year before their British tax liabilities resume. There is no minimum investment required for the setting up of a QROPS, but a minimum amount of £100,000 is required if the tax-savings are to be high enough to cover all of the set-up costs. Retiring abroad is a huge decision for anyone, so those who are considering it should be certain that the income from their pension funds will last. The HMRC provides advice for British citizens on the issue, so pensioners don’t need to head off to foreign shores unprepared.
Whichoffshore provide professional expatriate information on many financial topics in order to help British expatriates make the most of their expat life abroad. For more information, please visit www.whichoffshore.com.