Personal investing
Personal investing

Part 1: How to be more tax savvy

If, like most of us, you would like to see more return in your account and less in the hands of the tax man, it is important to engage with the details to understand how you can maximise tax breaks.

A famous saying attributed to Benjamin Franklin reminds us that that there are only two certainties in life – death and taxes. While we have little control over the first, we can be quite strategic about the second, with many legal ways to reduce your tax bill and boost your investment account.

While you have to accept that you will have to pay tax at some point, the South African government has put in place numerous incentives to encourage us to invest for the long term, while saving on our tax bill. These incentives can be very attractive, particularly when you look at how the value compounds over time.

So whether you are looking to reduce your current tax bill and save for your retirement, or reduce your future tax on investment return, there are government-approved products to help you achieve your goals. Remember, every little bit counts when saving for the long term.

Tax has a significant impact on your investment return

With so many products to choose from, it’s important to understand the tax advantages of the different investment products out there and make strategic choices, on your own, or with the help of a good, independent financial adviser.

There are a number of investment products on offer and the tax implications of investing in these products varies. Products you can choose to invest in include unit trusts, endowments, retirement annuities, and tax-free investments. You may also be invested in an employer-sponsored retirement fund, such as a pension or provident fund by virtue of your employment.

When deciding between investment products you need to consider various factors, including:

While tax efficiency must be considered, it should not be looked at in isolation when deciding which investment vehicle is most appropriate for you. You may need to consider a combination of products to meet your financial needs. All these products will be discussed in detail in Part 2 of this series. Before you engage with the detail of the products, it may also help to get your head around the different taxes that may be incurred when you invest. Table 1 can assist with this. 

This article forms part of a series, to sign up click here.

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