OFFSHORE INVESTING & BANK ACCOUNTS
At Vista Wealth Management we recommend a client’s offshore exposure to be at least 50% of their total investment portfolio. In order to accomplish this we’ve had to smooth the offshore investment process. We can now get our client’s ZAR converted into US$ within their own offshore bank account within one week. We then invest the US$ in an offshore structure in Bermuda, Guernsey or Jersey through Allan Gray, Sanlam Glacier, Liberty or Investec. The process end-to-end can take as little as two weeks for amounts smaller than the individual’s R1 million offshore discretionary allowance per year. The underlying investments are FSB approved offshore unit trusts.
Cost: Total investment charge as little as 2.5% (incl. VAT) per annum
Return: Past performance is not a guarantee of future returns, but our example portfolios had past performance in Rand terms of almost 23% per annum over the past 3 years:
We recommend a phased approach when investing offshore. Click here to learn more.
For a discretionary investment structure the minimum initial investment amount is US$10,000 and the minimum for subsequent ad hoc contributions are US$1,000.
For an endowment investment structure the minimum initial investment amount is between US$15,000 and US$25,000 depending on the provider we use. The minimum for subsequent ad hoc contributions also ranges between US$1,000 and US$10,000 also depending on the provider. We recommend the endowment structure due to the benefits listed below (adapted from a Fin24 article):
- Greater tax efficiency for higher income earners (above 30% tax rate) who have exhausted their interest exemptions
- Beneficiary nomination can lead to potential savings on executor’s fees (up to 3.99% of fund value). Where a beneficiary has been nominated, payment of the death benefit does not depend on the winding up of the estate and beneficiaries will receive the proceeds relatively quickly
- The proceeds from the endowment do form part of the estate for estate duty purposes. However, the first R3.5 million of the value of the estate is exempt from estate duty
- Tax administration is taken care of on your behalf (the insurance company calculates, deducts and pays the taxman)
- Insolvency protection – the entire value of the endowment will be protected against creditors after three years. This protection will continue until five years after the termination of the policy
- You are not restricted to maximum levels of equities and offshore investments, as in the case of retirement savings products
- You can also use an endowment to draw income upon retirement, as long as the five-year restricted period has passed. You can do this on an ad-hoc basis, without being forced to draw income at specific intervals
- Lastly offshore endowments protect you against international probate which could include very high death taxes
It is important to remember that endowment policies are governed by the Long Term Insurance Act and as such there are a few important rules and restrictions, which can be summarised as follows:
1. The restriction period is imposed by legislation. It is a period in which there are restrictions on the contributions and withdrawals you may make from the policy. This applies to the first five years of your policy, or five years from the first day of any month during which the 120% rule takes effect:
- In the second policy year when your contributions are greater than 120% of the first policy year’s total contributions.
- In any policy year when your contributions are greater than 120% of the higher of any of the previous two policy year’s total contributions.
2. Restrictions on fund accessibility:
- During the restriction period the policyholder can only access the funds in the policy by way of one withdrawal and one loan.
- The available amount will always be restricted to premiums plus 5% per annum. This is referred to as the restricted amount.