SA trusts to offshore trusts: How to transfer trust wealth offshore
By Rozanne Heystek-Potgieter *
Do you have cash stuck in an SA inter vivos trust, and looking for an opportunity to invest directly offshore? At the end of 2024, SARS clarified its position relating to trusts applying for approval to make distributions directly to offshore trusts, marking a major shift to the approach to offshore trust distributions and opening up new opportunities for individuals not wanting to distribute assets from trusts into their personal estates in order to externalise funds.
Historically, South African trusts have been limited in their ability to gain offshore investment exposure, as they do not have foreign investment allowances. The transfer of money or assets from South African trusts to offshore trusts was strictly regulated, particularly when the offshore trust had South African resident beneficiaries.
The new dispensation enables South Africans to move funds from their local trust structures without utilizing their personal allowances. With proper tax clearance from SARS and subsequent SARB approval, trustees can now transfer funds to offshore jurisdictions, expanding investment options and potential international tax planning strategies.
This change creates greater flexibility for estate planning and investment diversification while maintaining the numerous benefits of trust structures such as wealth protection, intergenerational succession, and wealth management, and making provision for dependants.
Step one would be assess the assets in the SA trust, in its update SARS refers to the “release of funds/amounts”, and it implies limitation on cash only being transferred between the trusts. This means no immovable assets or shares can be transferred to the offshore trust. Why would SARS be open to allowing inter-jurisdictional distributions? Simply answered, getting the Trust tax compliant and the potential capital gains tax. The realisation of assets in the trust to reduce to cash that can then be transferred out, will attract an effective CGT rate of 36% (80% of 45%, no annual exclusions and no primary residence deductions for trusts).
With the goal of obtaining necessary approval to distribute, the new offshore trust needs to be put in place, followed by amending the SA trust deed to include the offshore trust as a beneficiary.
Obtaining the necessary approvals from SARS and then SARB requires auditing the tax compliance of the local trust, updating trust deeds, setting up of the offshore trust, applying for SARS manual clearance, then submitted the application to SARB through an authorized dealer.
This type of transfer would only apply to inter vivos SA trusts, and not to existing SA mortis causa trusts (testamentary trusts) as it would not be possible to amend the trust deed if the trust provisions were set out in the will itself. To add on to this, it would not be possible to distribute to an existing testamentary offshore trust.
It's worth noting that even though SARS has clarified its position, SARB has not released a formal circular relating to these transfers, meaning there are no explicit written regulations governing these applications and they are currently handled on a case- by- case nature. SARB will scrutinize both the local and offshore trust deeds, and may impose specific conditions on approvals, such as requiring repatriation of distributions back to South Africa within 30 days unless the recipient beneficiary of the offshore trust obtains upfront approval to retain the funds offshore.
This is not a one size fits all solution, it will depend on the assets in the SA trust, the circumstances of the beneficiaries, the amount of cash available to run the offshore trust and the tax compliance of the SA Trust. It is crucial to consider the potential tax consequences of distributing funds offshore trust, anti-avoidance measures and attribution rules. Trustees should always seek professional tax advice before proceeding with a trust-to-trust distribution.
Given the complexity of these applications, it is advisable to consult with experts who are experienced in handling such matters and can guide you through the process. Brenthurst Wealth in partnership with our Mauritius Trust management company, Brent Consulta, we can assist investors with getting their SA trusts tax compliant, setting up Mauritius based offshore trusts, affecting trust deed amendments in SA, applying for approvals, forex, and then most importantly investing and managing the offshore Trust’s portfolio once the cash has been distributed.
* Rozanne Heystek-Potgieter, CFP®, fiduciary services specialist and non-practising attorney is based at Brenthurst Wealth Val de Vie, Paarl. rozanne@brenthurstwealth.co.za.
Disclaimer: This information is provided for informational purposes only and should not be construed as financial, banking, investment, or other professional advice. Consult with qualified professionals before making any decisions regarding trust distributions or offshore investments.
Source: SARS