South Africa: Tax free investment accounts should be a key consideration for investors in market uncertainty


With market uncertainty and high volatility, investors in South Africa should consider the long-term benefits and significant cost-savings associated with tax-free investment accounts.

Mark Humphreys, Business Manager at Standard Online Share Trading, says the distinction between tax-free savings and investment accounts is generally not well understood. This means investors could be missing out on an ideal opportunity to look-through volatile cycles and benefit over the long term.

“The investment opportunity angle seems to have been lost in all the talk of guaranteed interest rates in savings accounts. The little heard message, though, is that investors can take advantage of several tax-free benefits in the investment vehicle and reap significant reward”, he says.

As of 1 March 2015, individuals are allowed to invest up to R30 000 a year, or R500 000 over the course of their lifetimes, in an account that is free of interest tax, dividend withholding tax, securities transfer tax and capital gains tax.

“For anyone who is currently actively investing out of their after-tax income, it is pretty obvious they should be spending their first R30 000 in one of these new accounts, as you won’t get these benefits anywhere else,” he says.

What is noteworthy is that all interest and dividends earned contributes to the investment growth and profits earned do not consume the annual and lifetime limits.

While equity markets can be prone to sell-offs, the advantage is that the stock market’s typical average return tends to outperform cash and even other assets such as bonds or property, over a 20-year time horizon.

“This is well supported by the design of the tax-free offering in the sense that it encourages one to make a long-term commitment to your investment, as opposed to looking for quick gains,” says Mr Humphreys.

So for as little as R250 a month,  investors can now directly access selected JSE-listed instruments like property, top-40-linked baskets, sharia-compliant funds and dividend trackers to build up a diverse and potentially higher-growth portfolio.

Standard Bank has made it as easy as possible for clients to access these accounts.  Existing online share trading clients can open a new tax-free savings account, which will simply be added to the list of accounts they already control.

In this case, Standard Bank charges no new or additional fees other than the existing R80 already applicable for online share trading customers, which is inclusive of VAT. The cost of trading in the account is 0.25% plus statutory charges (although there is no securities transfer tax). All of the approximately 40 JSE listed collective investment scheme (CIS) ETFs are available for trade via this option.

Standard Bank customers who are not online share trading customers can open a tax free investment account via their internet banking portal. This gives them access to the same 40 odd ETFs.  Purchases are conducted on the 25th of each month (or the first business day thereafter). The cost of trading in the account is 0.25% plus statutory charges per transaction while the monthly fee is a mere R10 inclusive of VAT.

And customers can expect even more options in the future. Mr Humphreys says that during February and March 2016 Standard Online Share Trading in partnership with STANLIB will be offering brokerage free trade on the three STANLIB ETFs when purchases in a Tax Free account.

“We think the potential benefits are enormous and are therefore looking to go the extra mile for clients. The reality is only around 6% of South Africans can retire comfortably because our savings culture is not good enough. The more people we can encourage to invest and save and the more inclusive our financial system becomes, the better,” he says.


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