<\/p>\n
There has been a surge in the number of South Africans returning to SA from the UK in the years following Covid-19.<\/p>\n
There\u2019s now a brisk two-way traffic flow of South African professionals seeking work abroad and then, once they have accumulated some offshore assets, returning home.<\/p>\n
Add to this a growing number of UK nationals relocating to SA for reasons of lifestyle, low cost of living and weather.<\/p>\n
These decisions carry significant tax implications.<\/p>\n
Cross-border estate planning is no longer just about where assets are located.<\/p>\n
Families with links to both the UK and South Africa need to understand a few things:<\/p>\n
Their residence position;
\nThe UK\u2019s Long-Term Residence rules;
\nThe potential inheritance tax (IHT) \u2018tail\u2019 after leaving the UK; and
\nSA\u2019s residence-based estate duty rules, and how the treaty allocates taxing rights.<\/p>\n
Differences in estate tax<\/p>\n
The UK and South Africa tax estates in very different ways.<\/p>\n
The UK charges IHT at 40% above the available allowance, while South Africa levies estate duty at 20%, rising to 25% above R30 million, with different exemptions and deductions.<\/p>\n
The UK\u2019s new long-term residence test means individuals who have been UK tax resident for 10 or more of the past 20 tax years may remain exposed to UK IHT on worldwide assets, even if they are no longer UK domiciled under the old rules.<\/p>\n
Leaving the UK does not automatically end the exposure.<\/p>\n
A post-departure IHT \u2018tail\u2019 can keep worldwide assets within the UK net for up to 10 years, depending on the person\u2019s UK residence history.<\/p>\n
The IHT tail refers to the seven-year period after a person makes a gift during their lifetime, during which that gift may still be subject to IHT if the person dies within those seven years.<\/p>\n
South Africa applies a residence-based estate duty system. A person ordinarily resident in SA can be subject to estate duty on worldwide assets, while non-residents are generally exposed only on South African-situated assets.<\/p>\n
The 1979 UK-South Africa treaty usually prevents full double taxation, but it does not remove the need for advice.<\/p>\n
\u201cThe tax obligations for someone returning to SA from the UK can be complex, and few people really like to talk about it, but there is a danger of making some costly missteps by not knowing how best to structure your tax affairs,\u201d says Julian Adshade, director at specialist cross-border financial services firm Sable International.<\/p>\n
South Africa operates a residence-based tax system, meaning once you are South African tax resident, the South African Revenue Service (Sars) can tax your worldwide income and capital gains, not only income earned in SA. Non-residents, by contrast, are generally taxed only on South African-sourced income.<\/p>\n
Why tax residency is the first question to answer<\/p>\n
Before reviewing investments, property, pensions or tax returns, you first need to determine your tax residency status, says Adshade.<\/p>\n
\u201cSars assesses individual tax residency using two main tests: the ordinarily resident test and the physical presence test. The ordinarily resident test considers whether South Africa is your real or usual home \u2013 the place to which you would naturally return. The physical presence test looks at the number of days spent in South Africa over the relevant tax years.\u201d<\/p>\n
For returning South Africans, the ordinary residence test is often the most relevant.<\/p>\n
If you return with the intention of making South Africa your permanent or main home again, you may become South African tax resident from the date of return, even before the physical presence day-count test becomes relevant.<\/p>\n
Here are just two of the common mistakes Adshade sees from returning South Africans.<\/p>\n
Mistake 1: Assuming UK income is only taxable in the UK<\/p>\n
A common misconception is that UK income is only taxable in the UK. This is not always the case.<\/p>\n
If you are South African tax resident and continue to receive UK rental income, UK employment income, dividends, interest or pension income, that income may need to be declared in South Africa.<\/p>\n
The UK-SA Double Taxation Agreement (DTA) helps determine which country has primary taxing rights and how double taxation relief applies. However, a DTA does not usually mean the income can simply be ignored in South Africa.<\/p>\n
Mistake 2: Thinking \u2018double tax agreement\u2019 means \u2018no tax\u2019<\/p>\n
Double tax agreements are often misunderstood. Their purpose is to prevent the same income from being taxed twice without relief, not necessarily to make foreign income tax-free.<\/p>\n
Where a double tax agreement applies, the first step is to consider the specific treaty article relevant to that income, for example, employment income, rental income, pensions, dividends or interest.<\/p>\n
The agreement will determine whether the income is taxable in one country only, or whether one country has primary taxing rights while the other must provide relief.<\/p>\n
For returning South Africans, this means UK income may still need to be disclosed to Sars, even where the UK has already taxed it.<\/p>\n
The correct treatment usually involves applying the UK-South Africa double tax agreement to determine the taxing rights and whether any South African tax remains payable.<\/p>\n
In some cases, there may be no additional South African tax due, but that does not necessarily remove the reporting obligation.<\/p>\n
Practical steps before returning to South Africa<\/p>\n
Confirm when you are likely to become South African tax resident again;
\nReview whether you will remain UK tax resident for part of the year;
\nMap your income sources, including salary, rental income, dividends, interest, pensions and investment withdrawals;
\nObtain valuations for offshore assets, including UK property and investment portfolios;
\nReview UK ISAs (individual savings accounts)\u00a0and other UK tax-efficient investments;
\nConsider whether UK pensions should remain in place, be accessed, or be restructured;
\nCheck whether foreign tax credits will be available for UK tax already paid;
\nKeep clear records of offshore capital, income, acquisition costs and valuations; and
\nCoordinate UK and South African tax filings to avoid inconsistent reporting.<\/p>\n
Returning to South Africa can be an excellent lifestyle and financial decision, particularly for those coming back from the UK with international savings, pensions and investments. But the move should be planned carefully, says Adshade.<\/p>\n
\u201cThe biggest tax mistakes usually come from misunderstanding residency, assuming UK tax treatment applies in South Africa, failing to report offshore income, and not obtaining valuations for offshore assets on return,\u201d he says.<\/p>\n
\u201cThe key is to review your tax position before you move, not after Sars asks questions.\u201d<\/p>\n
Brought to you by Sable International.<\/p>\n
Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.\u00a0<\/p>\n
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