Rita Cool, Head: Individual Consulting Strategy – Best Practice at Alexforbes
The implications of the 2025 National Budget have placed a renewed focus on tax-efficient investment vehicles as a critical tool for South Africans looking to grow and preserve their wealth in an uncertain economic landscape. As the government seeks to bolster revenue generation through increases in VAT and fiscal drag by keeping the tax brackets unchanged for two years, investors are urged to take full advantage of the available tax incentives to optimise their financial future.
South African investors face the dual challenge of growing their assets while minimising the impact of taxation on their returns.
Key Tax-Efficient Investment vehicles to consider
1. Retirement Funds: Maximising pre-tax contributions
Retirement annuities, pension funds and provident funds remain among the most tax-efficient ways to save for the future. The latest budget reaffirms the tax deductibility of contributions, allowing individuals to deduct up to 27.5% of their taxable income, capped at R350,000 annually. Furthermore, with the implementation of the two-pot retirement system, investors now have structured access to liquidity while ensuring long-term preservation.
2. Tax-Free Savings Accounts (TFSAs): Leveraging the power of compound growth
Tax-Free Savings Accounts (TFSA) offer an attractive way for individuals to invest up to R36,000 per year, capped at R500,000 over a lifetime, without paying tax on dividends, interest, or capital gains. Compared to other taxed investments, the tax-free compounding effect makes a TFSA a crucial component of a diversified, tax-efficient portfolio.
3. Endowments: Optimising tax for investors
For investors in higher tax brackets, endowment policies offer a tax advantage by capping the effective tax rate at 30% within the policy, compared to the maximum individual rate of 45%. This investment vehicle remains attractive for long-term wealth accumulation, estate planning and intergenerational wealth transfer.
4. Capital Gains Tax (CGT) Planning: Minimising liabilities on investments
The budget review reinforces the importance of strategic capital gains tax (CGT) planning, with the inclusion rate for individuals at 40%. Investors should utilise tax exemptions, such as the annual R40,000 exclusion and structure their portfolios to optimise capital growth in the most tax-efficient manner.
5. Benefiting from Section 10c: Mitigate the tax paid on your retirement income
Section 10C of the Income Tax Act is designed to prevent double taxation on retirement contributions that were not tax-deductible when made. If you contributed to a pension, provident, or retirement annuity fund beyond the tax-deductible limit in a given tax year, those amounts can be excluded from taxable income when you start drawing an annuity or used to reduce the tax payable on lump sums taken at retirement.
The path forward
As the National Treasury continues to refine tax policies to balance revenue collection with economic stimulation, South African investors must proactively engage with financial advisors to ensure their portfolios align with the latest legislative changes. Leveraging tax-efficient investment vehicles is crucial for preserving wealth, maximising post-tax returns and ensuring financial security in an evolving economic environment.
ENDS
