As the saying goes, ‘life is what happens when you’re busy making other plans’.
When we first introduced you to our rugby players they were headed overseas to play on three-year contracts.
Tommy Owens from the UK was going to South Africa, with Piet Smit headed in the opposite direction.
Both then accepted three-year contract extensions, so their financial advisers reassessed the original plans and recommended the necessary adjustments.
All of the planning has been done with the intention of Tommy returning to the UK and Piet to South Africa.
But both now have three children and have been offered jobs as rugby commentators on TV.
So, what happens to all of their financial planning now they have decided not to go ‘home’?
Phil Billingham from Perceptive Planning and Barry O’Mahony from Veritas Wealth Management lay out their options.
Phil Billingham’s financial plan for Tommy Owens:
Tommy has clearly proved a hit with the South African fans. His ability to read the game and communicate clearly has been recognised and rewarded.
For the children, South Africa is now ‘Home’, and they are accomplished swimmers and chief Rhino-Spotters on game drives.
For their parents, this opportunity means making choices.
And the key one is – is this really forever? Do they really want to sever (financial) links with the ‘Old Country’, as others have done; or do they want to maintain a lifeboat, a foothold ‘back home’?
What about parents and grandparents?
Will they look to bring retired parents over to join them in South Africa, even if only for the UK winter – the ‘swallow’ lifestyle?
Are they going to start the process of becoming citizens, and changing their domicile, for example?
Passing the torch
While the original financial plan has done its job, and the family have a meaningful ‘cushion’ offshore, as well as a UK and a South African property, the time has come for a new plan.
Their local CFP Accredited Financial Planner at Veritas will be the person to work with them on this.
Our role, in the UK, will be a supporting one now. From here on in, the financial planning and advice needs to be local, South Africa-based and authorised.
In UK terms, much will depend on the outcome of this plan. Do they sell the UK house, for example? If so, what is the best place for the resulting capital? South Africa? The UK? To top up offshore accounts? In what currency should all this be?
The new South African based financial plan will guide us here.
Dotting the ‘i’s
While the UK does not have a formal ‘Financial Emigration’ process, HMRC does – understandably – want to know where you are resident and tax resident. We all have to pay tax somewhere!
Doing some work – even remotely – with an accountant with experience in this area is a ‘Must Do’. It is always cheaper and safer to address these things earlier rather than later.
We assume the new income from commentating is more than sufficient to keep them in the style they have become accustomed to, but they must still look to the future.
Media careers can be shorter than one thinks, so it’s important to be flexible.
In practical terms, let’s look at the UK State Pension provision. They need 10 years contributions to secure at least a partial pension.
What would it take to at least attain this figure?
Not that they need to add to this or consider voluntary contributions just yet, but this is worth keeping on their radar for both Tommy and his wife.
And should they do so at all?
Probably, but bear in mind that the UK State Pension is not currently index linked for South Africa residents, as it would be in the EU and the USA, for example.
Crossing the ‘t’s
It’s also time to review all other UK-based financial holdings, to see where – if at all – they fit into the new circumstances. Consolidation and new investment ‘homes’ offshore may well be appropriate.
New Wills and powers of attorney, especially in South Africa, are top priorities. If not already done, local protection policies need putting in place – potentially replacing policies held in the UK.
Medical Aid provisions for the family are key here and if it is an employed position this will hopefully be included in the employment contact.
But if Tommy is freelancing then this needs to be organised privately.
In summary, make a new financial plan based in the new circumstances, but be very aware that their lives have already changed a few times, and could well change again.
It is often said that fortune favours the brave, but it’s worth remembering that the well prepared also do very well.
Barry O’Mahony’s financial plan for Piet Smit:
Well done Piet. Glad to see those elocution lessons paid off, that teacher is clearly a genius!! You have come a long way, and now that a lot of people can actually understand what you are saying, you will have a long career as a TV pundit in the UK.
Also great to see that your wife and kids have settled in the UK and are now happy to make a go of it.
Now that you have made this lifestyle decision to stay, it will have a significant effect on the advice that we will give you. We are glad to see that you have formed a strong relationship with your CFP Professional at World Citizen.
There are now a number of things that we need to do in SA so that you can officially tax emigrate.
Tax Emigration
The emigration process has recently changed and the process is still settling down. We may well need to get expert advice to do this properly, but let’s for the moment examine some of the issues we will need to deal with.
The most important thing to realise is that ceasing to be a tax resident in SA will unfortunately trigger a Capital Gains Tax event on your worldwide assets. You will need to notify Sars that you are now non-resident for tax purposes, and then pay this “exit” tax on any applicable capital gains. It is important to note that Sars now deal with the tax emigration process, and you no longer have to submit an application through the Reserve Bank. As a result, you will still remain an SA resident for exchange control purposes, and you can keep your old green SA ID book as a souvenir.
You will, in future, only be taxed on rental and any other income that you actually earn in SA. In contrast, while Sars currently consider you to still be temporarily abroad, your worldwide income is taxable in SA.
Property in South Africa
You will need to determine a date when you officially left SA. Here you may need to seek the advice of an expert in this field. Fortunately, as most of your accumulated savings are in retirement funds, you will only have minimal CGT to pay on your unit trusts. The property in SA will only be subject to CGT when it is sold, even as a non-resident.
You have two choices in how you deal with the property now.
- You can sell it, pay CGT (if applicable) and take the money offshore.
- Another alternative is that you decide not to sell the property and continue to rent it out, paying tax on the net rental in SA. Although you will only pay CGT when you sell the property, remember that the primary resident abatement drops pro rata since you moved to the UK and it became an investment property.
If you had any life cover in SA left you would immediately cancel this, given that your cover is now firmly in place in the UK.
South African Retirement Annuities
From the date that you officially become SA tax non-resident, there will be a three-year waiting period before you can withdraw your retirement benefits and take the proceeds offshore after deduction of the retirement withdrawal tax. The application will also require a tax clearance certificate.
Apply for a foreign tax clearance
You and your wife are allowed to withdraw ZAR 1m (£49,864, $69,390, €58,614) each out of the country before you become tax non-resident, but if you decide to sell your property, then you will need to apply for foreign tax clearance to get the money transferred to your UK bank account.
World Citizen
It is then very important that you engage with your UK CFP Professional and make sure all your affairs are in order in the UK.
As you are now starting to build up savings in the UK and Guernsey, you will need to have a UK Will drafted for your worldwide assets, with the nomination of guardians for your minor children being your biggest priority, and provision for assets to be held in Trust for them if the worst was to happen.
Update your SA Will
If you are going to keep the property in SA, then you should still have a separate SA Will, but you must make sure that this relates only to your assets in SA (so that it doesn’t potentially revoke your UK Will). It should also refer back to the UK Will.
Piet – we have really enjoyed working with you. Good luck in the years ahead and we look forward to seeing you when you come out on holiday in search of some sun, amazing wines, great food and a place you will always call home.
