Taxation Services

If client activity is a reliable indicator, it would seem that South Africa (SA) is increasingly a retirement destination of choice for United Kingdom (UK) resident individuals.

SA has a favourable climate, a vibrant economy and a positive outlook but there could be potentially adverse UK and SA tax consequences for an individual migrating to the country so careful planning is required to mitigate such consequences as much as possible. This article highlights some of the more important aspects that a UK resident immigrant should consider and on which he should obtain prior professional advice.

The immigrant firstly needs to ascertain his UK domicile status. Domicile is a concept of international law, which determines an individual’s civil status for jurisdictional purposes such as marriage, divorce and property ownership.

The concept of domicile is extremely important in a UK tax context because of the UK tax advantages that are allowed to foreign-domiciled individuals. The relevance of domicile, in the context of migration, is that a person who leaves the UK and establishes a domicile of choice in another country is deemed to remain UK-domiciled for a period of three full UK tax years after having acquired his new domicile. His worldwide estate would remain liable to UK inheritance tax (IHT) for the three-year period and any settlement by him of assets on offshore trustees in excess of his so-called "nil-rate band" (which is currently £285,000), would attract an immediate 20% IHT charge. This reduces the opportunities for pre-migration planning to persons who are UK-domiciled or deemed UK-domiciled. In this regard it is important to note that if the immigrant has a foreign domicile but has been tax resident in the UK for 17 out of the preceding 20 tax years, the immigrant will be deemed to be UK-domiciled for IHT purposes.

The immigrant should consider whether he could benefit from SA estate duty advantages by settling an offshore discretionary trust, within his "nil rate band", prior to migrating to SA.

The type of Residence Visa the immigrant intends applying for must be considered. Because it can take up to a year for an application to be approved, the type of application should be decided on well in advance of migration to SA.

An immigrant will probably want to acquire immoveable property in SA. He needs to decide whether to buy the property in his own name or through a corporate entity or trust.

One of the SA tax benefits of the immigrant purchasing property in his own name is that the so-called primary residence exclusion would reduce exposure to capital gains tax on resale. This excludes the first R1.5 million taxable capital gain realised from the sale of the property. The exclusion is not available if the property is acquired through a corporate entity or trust. However, the advantage of the primary residence exclusion is offset by the fact that by acquiring the property in the immigrant’s own name, the asset would form part of his dutiable SA estate on death and would potentially be subject to SA estate duty.

Migrants to SA need to be aware of how the SA Exchange Control Regulations may affect them.

New immigrants to SA qualify for a five-year "holiday" from exchange control. In essence this means that if an immigrant remains in SA for a period of less than five years, he will be Visated to externalise all the assets that he introduced into SA during such period (as well as the growth in the assets), without any exchange control restrictions. After the five-year period, the immigrant will only be Visated to externalise the Rand value of the assets that he introduced into SA. The growth in the value of the assets would be subject to normal exchange control restrictions.

The ease with which the immigrant can exit from SA should he wish to do so, and the potential UK and SA tax consequences of his doing so, should also be considered. This aspect will primarily be determined by the manner in which the immigrant structured his affairs prior to migrating to SA.