/ 15 November 2010

Free to buy offshore property

In the medium-term budget Finance Minister Pravin Gordhan surprised the market by announcing a significant increase in the amount of money individuals can take offshore.

It has been well publicised that individuals can now take R4-million a year offshore, but individuals can also apply to take further funds offshore for other investment opportunities, including property.

In other words, a South African resident may now apply to acquire, for example, a fixed property anywhere in the world even if he/she has already used up their maximum foreign investment allowance

This is effectively an expansion on the existing SADC arrangement where South Africans could transfer money within the SADC region for investment properties. This has been a major driver of investment property in Mauritius. However, now South Africans are no longer limited to SADC and can invest anywhere.

Anton Maskowitz of FNB Private Bank says this allowance will be determined on an application basis. Currently it is not clear what criteria would need to be met. However, Maskowitz says it is probable that high-net-worth individuals who do not have a significant portion of their wealth offshore would be considered more favourably.

Maskowitz says it is expected that certain conditions will prevail in line with the current SADC rules. These rules stipulate that income or profits from the investment must be returned to South Africa or the individual must reapply to keep the funds abroad.

Additional allowances:
As part of the reforms, the Reserve Bank has combined all other allowances such as travel, maintenance, donations and gifts into a single annual discretionary allowance of R1-million for adults and R200 000 for persons under the age of 18.

Maskowitz says it is very important that South Africans understand that this cannot be used as an investment allowance. When applying for this allowance it stipulates that any unused portion must be remitted to the exchange dealer.

In order to apply for this allowance you have to go to through exchange-control rules and application to receive the funds. This includes money as gifts.

So, for example, if you wanted to transfer just R500 to a family overseas as a birthday gift, you have to go through the whole exchange-control process — this is something the authorities need to apply their minds to as the red tape in this situation seems unnecessary.

You can use your credit card to purchase goods from offshore; however, these goods must be for importation and the limit is a maximum of R20 000 per transaction — again this is a grey area if you want to purchase a gift offshore for a family member living abroad.

Blocked rands
People who have emigrated and now want to take their remaining funds can do so without incurring the 10% levy. Maskowitz says this includes ex-residents who have received donations from South African family members.

Emigrants who chose to leave money locally which they use for fund maintenance and levies on holiday homes or for travel when they visit for example, can now transfer these funds to an ordinary bank account and no longer have to apply through an authorised dealer each time they want to make a payment or withdraw money for personal use locally

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