Regulations regarding taking retirement funds out of the country when you emigrate changed from 1 March 2021. These changes affect people who have certain types of retirement funding, such as retirement annuities and preservation funds (with an important proviso to the preservation funds) and are thinking of leaving the country permanently or have even already left.
How will the changes affect anyone who are thinking of leaving the country permanently or have even already left? According to Daniel Baines and Gavin Duffy of PwC, the starting point in discussing the changes is to establish the law before the changes were made.
“Prior to 1 March 2021 you could not access your retirement annuity unless you were 55 years of age, the fund was worth less than R7 000, you became permanently disabled or you followed the formal/ financial emigration process with the South African Reserve Bank. From 1 March 2021 the South African Reserve Bank financial/formal emigration process no longer exists (unless your application to the Reserve Bank was received on or before 28 February 2021).”
Baines and Duffy point out that the law now states that anyone who wishes to access his/her retirement annuity may only do so if they have reached 55 years of age, the fund value is less than R15,000, they become permanently disabled or if they have been a non-resident for South African tax purposes for a period of three consecutive years on or after 1 March 2021 (i.e. if you were a non-resident for tax purposes from 1 March 2018 to 1 March 2021 you will qualify). “This last part is the important change for people who are thinking of leaving the country or have already left the country. If you want to access your retirement annuity (and the other provisos do not apply to you) you may no longer follow the formal/financial emigration process with the Reserve Bank; you must have been a non-resident for South African tax purposes for a period of at least three years.”
They also draw the attention to the fact that the change in the law is also applicable to certain preservation funds. “It is only if you have already made a withdrawal from a preservation fund that you must have broken your South African tax residency and have waited the three year period, as discussed above, in order to access that fund.”
Key takeaway
“It is, therefore, only certain retirement funding (retirement annuities and preservation funds that you have already withdrawn from) that are affected by the change in law and will require that you wait a three-year period from the date of breaking your South African tax residency in order to access the funds.
As an example, if you decide that you are going to leave South Africa and move to the UK on a permanent basis you should in theory be able to break your South African tax residency the day you leave the country. You would then need to wait for three years after this date to be able to access your retirement annuity, at which point you would be able to liquidate the full value of the fund and be liable to pay the applicable withdrawal taxes. Please note that if you have already reached the age of 55 you can access your retirement annuity at any point and the above three-year waiting period does not apply to you (although at this point you will be restricted to taking one third of the value of the fund as a lump sum and the remainder will need to go into a living annuity)
While specific guidance around how this three-year period of non-residence is to be proved to the South African authorities has yet to be provided (i.e., in terms of South African tax disclosures, filing requirements or foreign country tax residence certificate requirements), it is recommended that any impacted individual seek specialised South African tax advice to ensure correct disclosures to SARS are made.”
Click here to download the PwC Synopsis.
