There are various advantages of tax free investment accounts and tax-free returns. Saving for your first investment property, for a start-up business, for a wedding, for your children’s education or as part of your overall retirement plan.
What is a Tax-Free Investment Account?
In 2015, the National Treasury introduced tax free investments which were to be saving products allowing all returns (capital growth, dividends and interest earned) to be free from tax, provided that the specific product met specific criteria as defined by legislation.
This initiative was introduced by the South African Government to encourage people to save for the long-term. To achieve this, government placed investment limitations on the plans where an investor may contribute up to a maximum of R33 000 per year with a lifetime limit to contributions of R500 000. These limitations are strict in the sense that, an investor may not carry over their contribution to the following year if they did not hit their annual limitation in the previous year. In addition, any withdrawal from the tax-free account may not be replaced.
Patience is key for return maximisation
We encourage investors to remember that a tax-free investment plan is a long-term investment plan. The longer the funds are invested, the greater the returns will be as a result of the tax savings. The road to tax efficiency requires patience and investment discipline. A tax-free savings account is a great option for investors aiming to invest for a ten-year period or more.