Returning to South Africa after living and working overseas is not as easy as hopping on a plane with your family and quickly settling back in, even though it may all feel familiar. Julian Adshade from immigration specialist Sable International told BizNews in an interview that there are many essential factors to consider. This includes understanding your residency status, managing bank accounts, navigating tax implications, securing medical aid, evaluating pensions, obtaining life and disability insurance, handling currency transfers, and updating wills. If you’re returning from a country like the United Kingdom, one potential advantage lies in the differences in inheritance tax regulations. Adshade emphasised the importance of planning to avoid financial and legal pitfalls, ensuring a smooth transition for expats moving back.
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Highlights from the interview
In an interview with Linda van Tilburg, Julian Adshade from Sable International provides essential guidance for South Africans considering returning home after living abroad. Adshade highlights that a key concern for returnees is the tax implications, particularly the shift in tax residency. South Africa uses two tests to determine residency: the “ordinary resident test” and the “physical presence test.” Meeting either criterion means a person becomes a tax resident and is liable for taxes on South African-sourced income. Adshade advises returning expats to consult with a tax specialist to navigate both South African and international tax obligations, especially regarding double taxation.
When transferring money back to South Africa, Adshade emphasises the importance of securing favourable exchange rates and clarifies that capital transfers are not subject to taxation, only income. He also addresses pension considerations, especially for those with UK pensions, explaining the benefits of leaving pensions offshore, which are exempt from South African tax.
Regarding retirement, Adshade mentions South Africa’s new two-pot retirement system, which could offer tax advantages to those contributing to retirement funds. He also cautions about healthcare costs, suggesting that returnees plan for medical aid, especially to avoid penalties for late enrolment.
Lastly, Adshade touches on inheritance tax, noting that South Africa applies estate duty on worldwide assets but offers strategies for minimising this tax before returning, such as structuring assets offshore. He stresses the importance of thorough financial planning when returning to South Africa.
Edited transcript of the interview
Linda van Tilburg (00:00.49)
It is estimated that more than a million South Africans live overseas, drawn by that trek spirit that many of us have inherited in pursuit of greener pastures. However, some South Africans eventually find their way back to the familiar embrace of home. South Africa boasts a standard of living that few countries can emulate, not to mention its breathtaking natural beauty and hours of daylight, particularly enviable during the shorter days in places like the UK and Europe. But if you’re planning to return from overseas to South Africa, what steps should you take? We have Julian Adshade from Sable International on Biznews to provide valuable guidance on navigating this transition. Julian.
Julian Adshade (00:00:47)
Over the last 18 months to two years, we’ve seen a lot of people inquiring about returning to South Africa and looking particularly at what the tax implications around the move are. I think South Africans are naturally inclined to want to return to the place they call home. So yes, there’s been a big shift in focus from expats who previously would have remained outside of South Africa and now are considering a return. It’s definitely a hot topic at the moment.
Linda van Tilburg (00:01:31)
So, what should returners consider? Can we start with tax implications?
Julian Adshade (00:01:37)
Tax implications are probably the first question anyone looking to return to South Africa asks us. It’s important to understand that a move between countries shifts tax residency. South Africa has a very simple tax residency test, and there are effectively two. The first is the ordinary resident test, which looks at where you call home and where your permanent home is. It includes factors like where your family is, your assets are, and where you intend to reside long-term.
For many, the ordinary resident test would be a simple one. If you’re returning to South Africa long-term with your family, that’s the test you would meet. You would ultimately become a tax resident in South Africa on the day you return. The second test is the physical presence test. There are a few criteria one has to meet. You must be physically present in South Africa for 91 days or more in the current tax year, 91 days or more in the preceding five tax years, and a cumulative total of 915 days over the five preceding tax years, technically two and a half years. You have to meet all three criteria to be non-resident in South Africa.
For South Africans who have been outside of South Africa for a long period, it’s a test they could use if they retain property or ties outside of South Africa. For example, someone who returns or comes to South Africa from the UK, retains a property in the UK, and they rent it out and earn rental income but are renting a property in South Africa. They are not 100% sure that this is where they’ll be for the long-term. One can apply the physical presence test to them and the UK rental income from their property would not be taxable in South Africa because somebody that is non-resident under the physical presence test would not be taxed on foreign income but only on South African-sourced income.
Linda van Tilburg (00:04:09)
Okay, so it’s all about whether you are now a resident in South Africa. Double taxation is a problem. I had an issue with that.
Julian Adshade (00:04:16)
Double taxation agreements are in place, and there’s a watertight double taxation agreement between the UK and South Africa that deals with pretty much every form of income. It ensures you’re not taxed twice on the same income. So, one has to go and look at the double tax treaty specifically and how it applies to you and your income.
I recommend that before you consider making this move, seek advice from a specialist tax consultant who can advise you on the implications on both sides. Sable International is well-placed to do that. It’s important to understand your tax obligations in both the UK and South Africa. The primary market returning to South Africa at the moment is from the UK, so seeking that advice is imperative.
Linda van Tilburg (05:19:00)
Let’s look at currency transfers. If you want to bring money over, what should you take into consideration?
Julian Adshade (05:28:00)
When moving money between countries, it’s obviously important to consider what exchange rate you will get. You don’t want to lose money during the transfer. Obtaining the best rate is key. Sable International has a foreign exchange team that can help with currency transfers from outside South Africa to South Africa. There’s a common misconception around moving money; many South Africans think that when they move money to South Africa, they’ll incur taxes on their capital transfer. In reality, taxes apply to income, not capital transfers. It’s a question South Africans frequently ask: what tax will I pay on my transfer to South Africa? It’s not the case.
Linda van Tilburg (06:33.162)
I’m sure the South African government is keen for you to bring money in.
Julian Adshade (06:36.162)
Absolutely. As long as you’re going to be resident in South Africa, and pay tax, they would love your money to be in the country.
Linda van Tilburg (06:48.162)
Well, what about pension schemes? Should you transfer them?
Julian Adshade (06:53.00)
Again, if we look at the UK, they implemented auto-enrolment, making employer pension schemes compulsory. Many South Africans who moved to the UK have built up UK pensions. They can choose to leave their pensions in the UK, where it’s a pound-based asset and a natural hedge against an emerging market currency like the rand. There are options to transfer, but that comes with potential tax penalties for transferring. In most instances, it’s unnecessary because you already hold an offshore asset from a South African perspective. Certain pensions, like employment-related pensions, are exempt from tax in South Africa.
If we consider that a pension would be exempt from tax in South Africa, if it is an employer related pension, you can have a significant boost to your finances if you’re retiring in South Africa. Retaining pensions offshore and not cashing them is key. Additionally, since South Africa was added to the high-risk third country list by HM Treasury in 2023, many UK providers require enhanced due diligence for South African residents. It’s become more challenging to manage pensions with UK providers when you are a SA resident. Seeking advice in that regard should be on your to-do list. For the UK state pension, while it won’t increase if you’re outside the UK, it’s a great retirement income boost.
It’s important to note options for voluntary contributions to the UK state pension to increase your retirement income. You can contact the Future Pension Centre in the UK or the International Pension Centre, depending on your time spent outside the UK, to help increase your UK state pension. So, with employer pensions being exempt and having the state pension, a comfortable retirement in South Africa is achievable. This has been a big draw for many South Africans returning.
Linda van Tilburg (00:10:18)
What about the retirement system in South Africa? What should you consider?
Julian Adshade (00:10:20)
The South African retirement industry has undergone an overhaul with the introduction of the two-pot system, which allocates a portion of retirement funds into a pot inaccessible until after 55. If you’re returning to South Africa and continue to work, you need to understand how the retirement system can benefit you for tax purposes. Contributing to retirement savings may be a viable option. It could make sense if you are working upon returning to South Africa.
Linda van Tilburg (00:11:40)
So how would other UK investments that you hold be affected?
Julian Adshade (00:11:42)
If you look at the tax treatment of UK investments as a South African resident there’s potential liabilities for Capital Gains Tax on those investments as well as dividend and interest income too. A question I get often is “Should I retain my UK investments”, specifically ISAs which are individual savings accounts. If you’re in the UK, you’ll understand a lot about ISAs. The unfortunate part is that in South Africa they are not tax free and again it is a misconception that ISAs are tax free in South Africa. Many that return to South Africa go on for years without reporting that income. Effectively an ISA is seen as a normal investment now for South African tax purposes. You’ll actually end up paying tax on interest, dividends and Capital Gains. So, it is something to be aware of and report going forward.
Linda van Tilburg (00:12:24)
A big one is health insurance, which is becoming quite expensive in South Africa, especially if you’ve been using the National Health Insurance in countries like the UK.
Julian Adshade (00:12:39)
Navigating healthcare is a primary concern for returning South Africans, particularly as you age. South Africa’s private healthcare is some of the best globally. If you plan to return, start looking at medical aid options at least six months in advance. There are various providers and plans available, from basic hospital plans to comprehensive options.
However, one must consider the cost. If you’re over 35 and haven’t been a member of a South African medical scheme, you’re potentially liable for a late-joiner penalty, ranging from 5 to 75 percent, depending on the years without membership. Therefore, research is vital. You don’t want to land in South Africa without a plan and rely on the state. National health insurance is on the horizon, having been signed into law, and it’s only a matter of time before it’s implemented. How the medical aid industry will adapt is uncertain, so planning your healthcare in advance is crucial.
Linda van Tilburg (00:14:16)
What about inheritance tax?
Julian Adshade (00:14:25)
Currently, the UK is shifting from a domiciled system to a residence-based inheritance tax system, similar to South Africa. South Africa levies estate duty at 20 or 25 percent, depending on estate value. This presents an opportunity for those with significant assets. South Africa offers an abatement of R3.5 million per individual, or R7 million for married couples, before estate duty applies. As a bona fide non-resident, you can restructure your estate before re-entering South Africa. Entering South Africa subjects you to tax on your worldwide estate.
As an ordinary resident, estate duty applies on worldwide assets, including unit trusts, global share portfolios, etc. So, you have to be mindful of the opportunity that presents itself. Depending on which country you come from there are considerations that you have to make as to how you move assets into potentially an offshore trust or structure but some research and some thought process around that restructuring must be done well in advance before moving.
Once you’re in South Africa and your estate is subject to estate duty on worldwide assets, the opportunity to move assets out of your estate is actually limited or costly. Quite simply South Africa levies donations tax and moving assets out of your name requires funding through a loan or grant. With inheritance tax, speak to a specialist familiar with both UK and South African regulations to make informed decisions before returning because options reduce upon re-entry.
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